THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action you should take, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in CNPC (Hong Kong) Limited (the “Company”), you should at once hand this circular to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or the transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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CNPC (HONG KONG) LIMITED
(incorporated in Bermuda with limited liability)
CNPC (HONG KONG)
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CNPC (HONG KONG) LIMITED

(Stock Code: 0135)

(1) CONNECTED TRANSACTION IN RELATION TO THE HUAYOU SHARE ACQUISITION
(2) CONNECTED TRANSACTION IN RELATION TO DISPOSAL OF ASSETS FROM XINJIANG XINJIE TO PETROCHINA

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

==> picture [214 x 34] intentionally omitted <==

A letter from the Board is set out on pages 5 to 20 of this circular and a letter from the Independent Board Committee, containing its recommendation to the Independent Shareholders of the Company, is set out on page 21 of this circular. A letter from Guangdong Securities containing its advice to the Independent Board Committee and Independent Shareholders in respect of the Huayou Share Acquisition and Xinjiang Xinjie Assets Disposal is set out on pages 22 to 40 of this circular.

A notice of SGM to be held at Harbour View Room III & IV, 3/F., The Excelsior, Hong Kong, 281 Gloucester Road, Causeway Bay, Hong Kong, Hong Kong on 28 January 2010 at 11:00 a.m. is set out on pages SGM-1 to SGM-3 of this circular. A proxy form for use by the Shareholders at the SGM is enclosed with this circular. Whether or not you intend to attend and vote at the SGM in person, you are requested to complete the form of proxy enclosed in accordance with the instructions printed thereon and return it to the principal office of the Company at Rooms 3907 – 3910, 39th Floor, 118 Connaught Road West, Hong Kong as soon as practicable but in any event not later than 48 hours before the time for holding the SGM or adjourned meeting (as the case may be), completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM should you so wish.

* For identification purpose only

13 January 2010

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
2. HUAYOU SHARE ACQUISITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
3. XINJIANG XINJIE ASSETS DISPOSAL . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
4. INFORMATION ON THE COMPANY AND OTHER PARTIES . . . . . . . . . . .	18
5. SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
6. RECOMMENDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
7. ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
LETTER FROM INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . .	21
LETTER FROM GUANGDONG SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . .	22
APPENDIX I VALUATION REPORT ON THE PROPERTY INTERESTS
OF HUAYOU GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . .	41
APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP. . . . .	85
APPENDIX III VALUATION REPORT ON THE PROPERTY INTERESTS
OF XINJIANG XINJIE . . . . . . . . . . . . . . . . . . . . . . . . . . .	137
APPENDIX IV ASSET VALUATION REPORT OF XINJIE OIL ASSETS . .	156
APPENDIX V GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . .	179
NOTICE OF THE SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	SGM-1

– i –

DEFINITIONS

In this circular, unless the context otherwise requires, the following terms shall have the meanings set out below:

“associate(s)” has the meaning ascribed to it under the Listing Rules
“Board” means the board of directors of the Company
“China United Assets means (China United Assets Appraisal Appraisal Co., Ltd.” Co., Ltd.*), a China Certified Public Assets Valuer
“CNPC” means (China National Petroleum Corporation*), a State-owned enterprise established under the PRC laws
“Company” means CNPC (Hong Kong) Limited, a company incorporated with limited liability in Bermuda and the shares of which are listed on the Stock Exchange
“Companies Ordinance” the Companies Ordinance (Chapter 32 of the Laws of Hong Kong)
“connected persons” has the meaning ascribed to it under the Listing Rules
“controlling shareholder” has the meaning ascribed to it under the Listing Rules
“Director(s) “ means directors of the Company
“Group”
means the Company and its subsidiaries from time to time
“Hengchanglong”

means (Jiangyin City Hengchanglong Real Estates Co., Ltd.*), a company established under the PRC laws and one of the existing shareholders of Huayou

“Huayou” means (China Natural Gas Co., Ltd.*), a company established under the PRC laws and a non-wholly-owned subsidiary of the Company as to 51.01%

“Huayou Group”

means Huayou and its subsidiaries

“Huayou Share Acquisition” means the acquisition of 26.58% shareholding interest in Huayou from Shenzhen Petroleum by the Company
“Huayou Share Acquisition Agreement”
means the agreement dated 30 December 2009 entered into between Shenzhen Petroleum and the Company in respect of the Huayou Share Acquisition

– 1 –

DEFINITIONS

“HK$”
means Hong Kong dollars, the lawful currency of Hong Kong
“Independent Financial Adviser” or “Guangdong Securities”
means Guangdong Securities Limited, a licensed corporation to carry out type 1 (dealing in securities), type 2 (dealing in futures contracts), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities as defined under the SFO and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Huayou Share Acquisition and the Xinjiang Xinjie Assets Disposal
“Independent Shareholders” means the Shareholders other than CNPC and its associates
“Independent Board Committee”
means the independent committee of the Board, comprising Dr. Lau Wah Sum, Mr. Li Kwok Sing Aubrey and Dr. Liu Xiao Feng, the independent non-executive Directors of the Company, established for the purpose of, among other things, making recommendation to the Independent Shareholders in respect of the Huayou Share Acquisition and the Xinjiang Xinjie Assets Disposal
“Latest Practicable Date”
6 January 2010, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
“Listing Rules”
means The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
“PetroChina”
means PetroChina Company Limited, a joint stock limited company incorporated in the PRC under the laws of the PRC, and listed on the Shanghai Stock Exchange and the Stock Exchange with American Depositary Shares listed on the New York Stock Exchange and a non-wholly owned subsidiary of CNPC
“PetroChina Northwestern means (PetroChina Sales Branch” Company Limited Northwestern Sales Branch*), a branch of PetroChina
“PetroChina Western means (PetroChina Pipeline Branch” Company Limited Western Pipeline Branch*), a branch of PetroChina
“PRC”
means the People’s Republic of China

– 2 –

DEFINITIONS

“PRC GAAP”

means the generally accepted accounting principles in the PRC

“Refined Oil Pipeline means the disposal of the Xinjie Refined Oil Pipeline Transmission Assets Transmission Assets Disposal”
“Refined Oil Pipeline means the agreement dated 18 December 2009 entered into Transmission Assets between Xinjiang Xinjie and PetroChina Western Pipeline Disposal Agreement” Branch in relation to the Refined Oil Pipeline Transmission Assets Disposal
“Refined Oil Storage Assets means the disposal of the Xinjie Refined Oil Storage Assets Disposal”
“Refined Oil Storage Assets means the agreement dated 18 December 2009 entered into Disposal Agreement” between Xinjiang Xinjie and PetroChina Northwestern Sales Branch in relation to the Refined Oil Storage Assets Disposal
“RMB” means Renminbi, the lawful currency of the PRC
“SFO” means the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“SGM” means a special general meeting of the Company to be held on 28 January 2010, including any adjournment thereof, notice of which is set out on pages SGM-1 to SGM-3 of this circular to approve, among other things, the Huayou Share Acquisition and the Xinjiang Xinjie Assets Disposal
“Share(s) “ means ordinary share(s) of HK$0.01 each in the share capital of the Company
“Shareholder(s) “ means holder(s) of Shares of the Company
“Shenzhen Petroleum” means (CNPC Shenzhen Petroleum Industrial Co., Ltd.*), a company established under the PRC laws, one of the existing shareholders of Huayou and a wholly-owned subsidiary of CNPC
“Stock Exchange” means The Stock Exchange of Hong Kong Limited
“subsidiaries” has the meaning ascribed to it under the Listing Rules
“substantial shareholder” has the meaning ascribed to it under the Listing Rules

– 3 –

DEFINITIONS

“Target Shares”
means the 92,250,000 shares of Huayou sold by Shenzhen Petroleum to the Company pursuant to the Huayou Share Acquisition Agreement
“Valuation Date” means 31 August 2009 in respect of the Huayou Share Acquisition and 31 December 2008 in respect of the Xinjiang Xinjie Assets Disposal
“Xihu Golf” means (Hangzhou Xihu International Golf Club Co., Ltd.*), a company established under the PRC laws and one of the existing shareholders of Huayou
“Xinjie Oil Assets”
means the Xinjie Refined Oil Storage Assets and the Xinjie Refined Oil Pipeline Transmission Assets
“Xinjie Refined Oil Storage means the assets used for the refined oil storage and transit Assets” business owned by Xinjiang Xinjie
“Xinjie Refined Oil Pipeline means the assets used for the refined oil pipeline Transmission Assets” transmission business owned by Xinjiang Xinjie
“Xinjiang Xinjie” means (Xinjiang Xinjie Co., Ltd.*), a company established under the PRC laws and a non-wholly-owned subsidiary of the Company
“Xinjiang Xinjie Assets Disposal”
means the disposal of the Xinjie Refined Oil Storage Assets and the Xinjie Refined Oil Pipeline Transmission Assets
“Xinjiang Xinjie Assets means the Refined Oil Storage Assets Disposal Agreement Disposal Agreements” and the Refined Oil Pipeline Transmission Assets Disposal Agreement
“Zhejiang Jindi” means (Zhejiang Jindi Group Co., Ltd.*), a company established under the PRC laws and one of the existing shareholders of Huayou

Note:

(1) For the purpose of this circular, unless otherwise indicated, the exchange rate at RMB1.00=HK$1.13 has been used, where applicable, for purpose of illustration only and does not constitute a representation that any amount have been, could have been or may be exchanged.
(2) If there is any discrepancy or inconsistency between the Chinese names of the PRC entities and their English translations in this circular, the Chinese version shall prevail.
For identification purpose only

– 4 –

LETTER FROM THE BOARD

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CNPC (HONG KONG)
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CNPC (HONG KONG) LIMITED

(incorporated in Bermuda with limited liability)

(Stock Code: 0135)

Directors:

Mr. Li Hualin (Chairman)

Mr. Zhang Bowen (Chief Executive Officer) Mr. Cheng Cheng Dr. Lau Wah Sum, GBS, LLD, DBA, JP[#] Mr. Li Kwok Sing Aubrey[#] Dr. Liu Xiao Feng[#]

# Independent Non-executive Directors

Registered office: Clarendon House Church Street Hamilton HM11 Bermuda

Principal office in Hong Kong: Rooms 3907 – 3910 39th Floor 118 Connaught Road West Hong Kong

13 January 2010

To the Shareholders

Dear Sir or Madam,

(1) CONNECTED TRANSACTION IN RELATION TO THE HUAYOU SHARE ACQUISITION (2) CONNECTED TRANSACTION IN RELATION TO DISPOSAL OF ASSETS FROM XINJIANG XINJIE TO PETROCHINA

1. INTRODUCTION

Reference is made to the announcements of the Company dated 30 December 2009 and 18 December 2009 in relation to the connected transactions regarding the Huayou Share Acquisition and the Xinjiang Xinjie Assets Disposal respectively.

1.1 Huayou Share Acquisition

On 30 December 2009, the Company entered into the Huayou Share Acquisition Agreement with Shenzhen Petroleum, pursuant to which the Company has conditionally agreed to acquire, and Shenzhen Petroleum has conditionally agreed to sell 92,250,000 shares of Huayou, representing approximately 26.58% shareholding interest in Huayou, in consideration of RMB260,151,100 (equivalent to approximately HK$293,971,000) which is equivalent to the base price of the open tender of RMB260,151,100.

* For identification purpose only

– 5 –

LETTER FROM THE BOARD

Huayou is a non-wholly-owned subsidiary of the Company. Upon completion of the Huayou Share Acquisition, the Company’s shareholding in Huayou will increase from 51.01% to 77.59%.

As at the Latest Practicable Date, CNPC, the ultimate shareholder of the Company, was deemed to be interested in 2,627,557,342 Shares, representing approximately 53.23% of the issued share capital of the Company. To the best of the Directors’ knowledge, CNPC is entitled to control all voting rights in respect of its Shares as at the Latest Practicable Date. Shenzhen Petroleum is a wholly-owned subsidiary of CNPC. Pursuant to the Listing Rules, each of CNPC and Shenzhen Petroleum is a connected person of the Company and accordingly, the Huayou Share Acquisition constitutes a connected transaction of the Company.

The applicable percentage ratios referred to in Chapters 14 and 14A of the Listing Rules for the Huayou Share Acquisition by itself is more than 2.5% and thus constitutes a connected transaction of the Company and is subject to, among other things, the approval by the Independent Shareholders at the SGM by way of poll.

1.2 Disposal of Assets from Xinjiang Xinjie to PetroChina

On 18 December 2009, Xinjiang Xinjie, a non-wholly-owned subsidiary of the Company, has entered into the Refined Oil Storage Assets Disposal Agreement and the Refined Oil Pipeline Transmission Assets Disposal Agreement with PetroChina Northwestern Sales Branch and PetroChina Western Pipeline Branch, respectively, pursuant to which Xinjiang Xinjie has conditionally agreed to sell, and PetroChina Northwestern Sales Branch and PetroChina Western Pipeline Branch has each conditionally agreed to purchase, the Xinjie Refined Oil Storage Assets and Xinjie Refined Oil Pipeline Transmission Assets, at a consideration of RMB83,914,553.80 and RMB500,912,810.38, respectively (equivalent to approximately HK$94,823,000 and HK$566,031,000 respectively).

As at the Latest Practicable Date, PetroChina was deemed to be interested in approximately 50.92% of the issued share capital of the Company. CNPC, the ultimate shareholder of the Company and PetroChina, is deemed to be interested in approximately 53.23% of the issued share capital of the Company. Xinjiang Xinjie is a non-wholly-owned subsidiary of the Company. Both CNPC and PetroChina are the controlling shareholders of the Company. Pursuant to the Listing Rules, each of CNPC and PetroChina is a connected person of the Company and Xinjiang Xinjie Assets Disposal constitutes a connected transaction of the Company.

The applicable percentage ratios referred to in Chapter 14A of the Listing Rules for the total consideration of Xinjiang Xinjie Assets Disposal is more than 2.5% and thus constitutes a connected transaction subject to, among other things, the approval by the Independent Shareholders at the SGM by way of poll.

An Independent Board Committee comprising all the independent non-executive Directors has been established to advise the Independent Shareholders, among other things, in relation to the Huayou Share Acquisition and the Xinjiang Xinjie Assets

– 6 –

LETTER FROM THE BOARD

Disposal. Guangdong Securities has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

The purposes of this circular, among other things, are:

a. to provide you with further details of the Huayou Share Acquisition and the Xinjiang Xinjie Assets Disposal;
b. to set out the recommendation of the Independent Board Committee regarding the Huayou Share Acquisition and the Xinjiang Xinjie Assets Disposal to the Independent Shareholders;
c. to set out the letter of advice from Guangdong Securities containing its advice to the Independent Board Committee and the Independent Shareholders on the Huayou Share Acquisition and the Xinjiang Xinjie Assets Disposal;
d. to set out the valuation report on the properties of Huayou Group;
e. to set out the asset valuation report of Huayou Group;
f. to set out the valuation report on the properties of Xinjie Oil Assets;
g. to set out the asset valuation report of Xinjie Oil Assets; and
h. to set out the notice of the SGM.

2. HUAYOU SHARE ACQUISITION

2.1 Introduction

As at the Latest Practicable Date, the registered capital of Huayou was RMB347,000,000 and the following diagram illustrates a simplified corporate structure of Huayou as at the Latest Practicable Date:

==> picture [400 x 156] intentionally omitted <==

----- Start of picture text -----

CNPC
2.30%
86.29%
PetroChina
100.00%
50.92%
The Company ShenzhenPetroleum ZhejiangJindi Hengchanglong Xihu Golf
51.01% 26.58% 19.67% 2.45% 0.29%
Huayou
----- End of picture text -----

– 7 –

LETTER FROM THE BOARD

2.2 Huayou Share Acquisition Agreement

On 30 December 2009, the Board announced that the Company entered into the Huayou Share Acquisition Agreement, the details of which are set out below.

(a) Date: 30 December 2009

(b) Parties:

The Company and Shenzhen Petroleum

(c) Acquisition

On 30 November 2009, Shenzhen Petroleun arranged to sell 26.58% interest in Huayou through open tender on the China Beijing Equity Exchange ( ) pursuant to the relevant PRC laws and regulations governing disposal of state-owned assets. The Company submitted an application to acquire and bid for the 26.58% interest in Huayou on 25 December 2009.

The Deposit (a refundable deposit of RMB78,045,330 (equivalent to approximately HK$88,191,000)), was paid by the Company on 22 December 2009. The open tender was closed on 25 December 2009 and the Company was informed that it is the sole bidder.

Subject to satisfaction or waiver of the conditions precedent under the Huayou Share Acquisition Agreement, the Company has agreed to purchase, and Shenzhen Petroleum has agreed to sell, 92,250,000 shares of Huayou, representing approximately 26.58% shareholding interest in Huayou, in consideration of RMB260,151,100 (equivalent to approximately HK$293,971,000) which is equivalent to the base price of the open tender of RMB260,151,100. The Company intends to make payment of its acquisition out of its internal resources.

Upon the completion of the Huayou Share Acquisition, the Company’s shareholding in Huayou will increase from 51.01% to 77.59% which will continue to remain as a non-wholly-owned subsidiary of the Company.

– 8 –

LETTER FROM THE BOARD

Below illustrates a simplified structure of Huayou upon the completion of the Huayou Share Acquisition:

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----- Start of picture text -----

CNPC
2.30% 86.29%
PetroChina
50.92%
Zhejiang
The Company Hengchanglong Xihu Golf
Jindi
77.59% 19.67% 2.45% 0.29%
Huayou
----- End of picture text -----

(d) Consideration

The consideration payable in respect of the Huayou Share Acquisition is equal to the base price of the 26.58% interest in Huayou put on open tender set by Shenzhen Petroleum and approximately 114% of the appraised net asset value of the Target Shares as at Valuation Date, being 31 August 2009, of RMB227,338,200 (equivalent to HK$256,892,000). This value is based on the appraised net asset value of Huayou as at the Valuation Date of RMB855,297,900 (equivalent to approximately HK$966,487,000) as per a valuation report of Huayou prepared by China United Assets Appraisal Co., Ltd., an independent qualified PRC valuer, which is set out in Appendix II to this circular. The appraised net asset value of Huayou was computed based on the asset-based approach, and is chosen as the reference basis for the Company in submitting its bid for its conversatism, certainty and that it is not based on assumption about future conditions. According to the audited accountants reports of Huayou prepared based on the PRC GAAP, as at the Valuation Date, the audited consolidated net assets value of Huayou was approximately RMB980,364,847 (equivalent to approximately HK$1,107,812,000). The original investment cost of the 26.58% interest by Huayou to Shenzhen Petroleum was approximately RMB92,250,000, being the registered capital contributed by Shenzhen Petroleum in Huayou.

– 9 –

LETTER FROM THE BOARD

The audited net profit before and after tax of Huayou Group for the two years ended 31 December 2008 were as follows:

			Year ended 31 December	Year ended 31 December
			2008	2007
			(RMB)	(RMB)
Net	profit	before tax	104,379,689 or	60,540,472 or
			approximately	approximately
			HK$117,949,000	HK$68,411,000
Net	profit	after tax	89,137,843 or	49,842,057 or
			approximately	approximately
			HK$100,726,000	HK$56,322,000

(e) Conditions Precedent

Completion of the Huayou Share Acquisition is subject to the satisfaction or waiver by the Company of certain conditions precedent, including:

(i) the remaining three shareholders of Huayou, i.e. Hengchanglong, Xihu Golf and Zhejiang Jindi, producing letters of undertaking, respectively approving the transfer of the Target Shares and waiving their right of first refusal;
(ii) the Company and Shenzhen Petroleum having obtained all necessary governmental and internal authorisations, consents and approvals and having completed all registrations and/or filings required by laws in relation to the Huayou Share Acquisition;
(iii) none of the governmental authorities in the PRC has taken any pending actions or steps or will take any possible actions or steps which might restrict or prohibit the completion of any transactions contemplated under the Huayou Share Acquisition Agreement or any transactions ancillary to the aforesaid transactions, or might obstruct or restrict the operation of the Huayou Share Acquisition;
(iv) none of the governmental authorities in the PRC has enacted any laws, rules or regulations which might render the completion of the Huayou Share Acquisition unlawful;
(v) the sale of the Target Shares having completed the open tender process in accordance with the laws and regulations of the PRC and the China Beijing Equity Exchange, and as of the date of the Huayou Share Acquisition Agreement, the Company is the only legal transferee of the Target Shares;

– 10 –

LETTER FROM THE BOARD

(vi) the Company having obtained the approval at the general meeting of the Shareholders pursuant to the Listing Rules (if required); and
(vii) the representations, warranties and undertakings given by Shenzhen Petroleum in the Huayou Share Acquisition Agreement remaining true and accurate from the date of the Huayou Share Acquisition Agreement to the date on which Huayou is registered as the holder of the Target Shares in the business registration records of the PRC.

As at the Latest Practicable Date, to the best of the Directors’ knowledge, save for the Independent Shareholders’ approval of the Huayou Share Acquisition at the SGM, the Company and Shenzhen Petroleum have obtained all necessary internal approvals. The registrations and/ or filings required by laws in relation to the Huayou Share Acquisition in the PRC can only be completed upon the Company having obtained the Independent Shareholders’ approval.

(f) Completion

Completion of the Huayou Share Acquisition shall take place on the date on which all the conditions precedent of the Huayou Share Acquisition Agreement are satisfied, or waived by the Company (as the case may be) or the date on which the approval by the Independent Shareholders at the SGM of the Huayou Share Acquisition is obtained by the Company, but shall in any event take place on or before 28 February 2010.

2.3 Reasons for, and benefits of, the Huayou Share Acquisition

The Board considers that the Huayou Share Acquisition is in line with the development strategies of the Group as a whole. The Huayou Share Acquisition will increase the Company’s interest in Huayou from 51.01% to 77.59%. The Company will explore new business growth opportunities in city gas, vehicle fuel gas and related businesses following the restructuring pursuant to which PetroChina has become the controlling shareholder of the Company since 18 December 2008. Further details of the restructuring of the Company are set out in the joint announcements of the Company and PetroChina dated 27 August 2008 and 18 December 2008.

The Board believes that the Huayou Share Acquisition would enable the Company to further leverage on its economy of scale, improve its efficient allocation of resources, enhance its competitiveness, bring new development opportunities and strengthen the ability to generate yield to Shareholders.

2.4 Relation among the parties and connected transaction

– 11 –

LETTER FROM THE BOARD

subsidiary of CNPC. Pursuant to the Listing Rules, each of CNPC and Shenzhen Petroleum is a connected person of the Company and accordingly, the Huayou Share Acquisition constitutes a connected transaction of the Company.

Each of the applicable percentage ratios referred to in Chapter 14 of the Listing Rules for the Huayou Share Acquisition by itself is more than 2.5% and thus constitutes a connected transaction of the Company and is subject to, among other things, the approval by the Independent Shareholders at the SGM by way of poll.

As CNPC has a material interest in the Huayou Share Acquisition, CNPC and its associates are required to abstain from voting on the resolution approving the Huayou Share Acquisition. As far as the Company is aware of, Shenzhen Petroleum does not have any shareholding in the Company. An Independent Board Committee comprising all the independent non-executive Directors has been established to advise the Independent Shareholders, among other things, in relation to the Huayou Share Acquisition. Guangdong Securities has been appointed to advise the Independent Board Committee and the Independent Shareholders in this regard.

3. XINJIANG XINJIE ASSETS DISPOSAL AGREEMENTS

3.1 Introduction

As at the Latest Practicable Date, Xinjiang Xinjie, a non-wholly-owned subsidiary of the Company, was owned as to 97.26% and 2.74% by the Company and independent third parties respectively.

Set out below is a simplified corporate structure of Xinjiang Xinjie as at the Latest Practicable Date:

==> picture [273 x 191] intentionally omitted <==

----- Start of picture text -----

CNPC
86.29%
2.30% PetroChina
50.92%
Independent Third
Company
Parties
97.26% 2.74%
Xinjiang Xinjie
----- End of picture text -----

– 12 –

LETTER FROM THE BOARD

3.2 Xinjiang Xinjie Assets Disposal Agreements

The Board announced that on 18 December 2009, Xinjiang Xinjie has entered into the Xinjiang Xinjie Assets Disposal Agreements and the details are set out below:

(i) Refined Oil Storage Assets Disposal Agreement

(a) Date: 18 December 2009
(b) Parties:
(i) Purchaser: PetroChina Northwestern Sales Branch
(ii) Vendor: Xinjiang Xinjie (a subsidiary of the Company)
(c) Assets to be disposed of:

The Xinjie Refined Oil Storage Assets, which are assets used for the refined oil storage and transit business owned by Xinjiang Xinjie, including:

(i) buildings, other building structures, goods, machines and the ancillary equipment and facilities;
(ii) the rights and obligations under the agreements (including supplemental agreements and amendment agreements) entered into by Xinjiang Xinjie in relation to the assets used for the refined oil storage and transit business;
(iii) to the extent permitted by the applicable laws and regulations, the interests under permits, licenses, approvals, confirmations, authorisations or any other similar documents in respect of the refined oil storage and transit business;
(iv) any rights vis-a-vis third parties in relation to or arising out of the assets used for the refined oil storage and transit business;
(v) any business, financial, operational records, operational data, statistics and other relevant documents, etc. in relation to the assets used for the refined oil storage and transit business; and
(vi) any other assets included in the valuation report in respect of Xinjie Refined Oil Storage Assets.

(d) Consideration:

The consideration payable in respect of the Refined Oil Storage Assets Disposal Agreement was RMB83,914,553.80 (equivalent to approximately HK$94,823,000). As at the Valuation Date, the net book value of the Xinjie

– 13 –

LETTER FROM THE BOARD

Refined Oil Storage Assets was approximately RMB60,586,569. Accordingly, a projected gain of approximately RMB23,000,000 (equivalent to approximately HK$25,990,000) is expected to be accrued to the Group as a result of the Xinjie Refined Oil Storage Assets Disposal. Please refer to paragraph 3.3 as to the valuation methodology of the Refined Oil Storage Assets Disposal.

According to the audited reports of Xinjiang Xinjie, as at the Valuation Date, the audited net profits attributable to the Xinjie Refined Oil Storage Assets for the financial years ended 31 December 2007 and 31 December 2008 were approximately RMB1,824,416 and RMB1,107,714, respectively.

(e) Conditions Precedent:

Completion of the Refined Oil Storage Assets Disposal Agreement is subject to the satisfaction or waiver by the Company of certain conditions precedent, including:

(i) the purchaser having completed its due diligence carried out in respect of the Xinjie Refined Oil Storage Assets;
(ii) creditors and other relevant third parties having provided all the necessary consents in respect of the transfer of the Xinjie Refined Oil Storage Assets;
(iii) no material adverse change in the operations and technical performance of the refined oil storage and transit business;
(iv) the representations, warranties and undertakings given by PetroChina Northwestern Sales Branch remaining true, accurate, complete and valid on the date of completion.

(f) Completion

Completion of the Refined Oil Storage Assets Disposal shall take place on the later of 18 December 2009 or the date on which all the conditions precedent of the Refined Oil Storage Assets Disposal Agreement are satisfied or the date on which the approval by the Independent Shareholders at the SGM of the Xinjiang Xinjie Assets Disposal is obtained by the Company.

(ii) Refined Oil Pipeline Transmission Assets Disposal Agreement

(a) Date: 18 December 2009

(b) Parties:

(i) Purchaser: PetroChina Western Pipeline Branch

– 14 –

LETTER FROM THE BOARD

(ii) Vendor: Xinjiang Xinjie (a subsidiary of the Company)

(c) Assets to be disposed of:

The Xinjie Refined Oil Pipeline Transmission Assets, which are assets used for the refined oil pipeline transmission business owned by Xinjiang Xinjie, including:

(i) buildings, other buildings, structures, goods, machines and the ancillary equipment and facilities;
(ii) the rights and obligations under the agreements (including supplemental agreements and amendment agreements) entered into by Xinjiang Xinjie in relation to the assets used for refined oil pipeline transmission;
(iii) to the extent permitted by the applicable laws and regulations, the interests under permits, licenses, approvals, confirmations, authorisations or any other similar documents in respect of the refined oil pipeline transmission business;
(iv) any rights vis-a-vis third parties in relation to or arising out of the assets used for the refined oil pipeline transmission business;
(v) any business, financial, operational records, operational data, statistics and other relevant documents, etc. in relation to the assets used for the refined oil pipeline transmission business; and
(vi) any other assets included in the valuation report in respect of Xinjie Refined Oil Pipeline Transmission Assets.

(d) Consideration:

The consideration payable in respect of the Refined Oil Pipeline Transmission Assets Disposal Agreement was RMB500,912,810.38 (equivalent to approximately HK$566,031,000). As at the Valuation Date, the net book value of the Xinjie Refined Oil Pipeline Transmission Assets was approximately RMB451,152,672. Accordingly, a projected gain of approximately RMB49,000,000 (equivalent to approximately HK$55,370,000) is expected to be accrued to the Group as a result of the Xinjie Refined Oil Pipeline Transmission Assets Disposal. Please refer to paragraph 3.3 as to the valuation methodology of the Refined Oil Pipeline Transmission Assets Disposal.

– 15 –

LETTER FROM THE BOARD

According to the audited reports of Xinjiang Xinjie, as at the Valuation Date, the audited net profits attributable to the Xinjie Refined Oil Pipeline Transmission Assets for the financial years ended 31 December 2007 and 31 December 2008 were approximately RMB13,107,098 and RMB7,958,119, respectively.

(e) Conditions Precedent:

Completion of the Refined Oil Pipeline Transmission Assets Disposal Agreement is subject to the satisfaction or waiver by the Company of certain conditions precedent, including:

(i) the purchaser having completed its due diligence carried out in respect of the Xinjie Refined Oil Pipeline Transmission Assets;
(ii) creditors and other relevant third parties having provided all the necessary consents in respect of the transfer of the Xinjie Refined Oil Pipeline Transmission Assets;
(iii) no material adverse change in the operations and technical performance of the refined oil pipeline transmission business;
(iv) the representations, warranties and undertakings given by PetroChina Western Pipeline Branch remaining true, accurate, complete and valid on the date of Completion.

(f) Completion

Completion of the Refined Oil Pipeline Transmission Assets Disposal shall take place on the later of 18 December 2009 or the date on which all the conditions precedent of the Refined Oil Pipeline Transmission Assets Disposal Agreement are satisfied or the date on which the approval by the Independent Shareholders at the SGM of the Xinjiang Xinjie Assets Disposal is obtained by the Company.

3.3 Valuation of the Xinjiang Xinjie Assets Disposal

The consideration of the Refined Oil Storage Assets Disposal Agreement and the Refined Oil Pipeline Transmission Assets Disposal Agreement was arrived at after arm’s length negotiations and is with reference to the appraised value of the Xinjie Oil Assets (on a collective basis) as at the Valuation Date, being 31 December 2008, as set out in a valuation report of Xinjie Oil Assets prepared by China United Assets Appraisal Co., Ltd., an independent qualified PRC valuer. The report is set out in Appendix IV to this circular and the appraised value of Xinjie Oil Assets was computed based on the cost approach. The consideration for the respective agreement represents a proportional share of the appraised value of Xinjie Oil Assets, based on the net book value of the Refined Oil Storage Assets and the Refined Oil Pipeline Transmission Assets as recorded in Xinjiang Xinjie’s accounts. As disclosed in the

– 16 –

LETTER FROM THE BOARD

announcement and circular in respect of Xinjiang Xinjie Acquisitions dated 9 January 2009 and 22 January 2009 respectively, as a term in the Xinjiang Xinjie Tranche A Agreement (as defined in the Company’s announcement dated 9 January 2009), the Company has agreed to transfer the oil and gas assets to PetroChina at a fair price. The parties consider that it would be fair for the consideration of the Xinjie Assets Disposal to be determined by reference to a valuation as of a date closer to the date of the Xinjiang Xinjie Tranche A Agreement, i.e. 9 January 2009, and have therefore chosen to determine the consideration of the Xinjie Oil Assets based on the Valuation Date, i.e. 31 December 2008.

3.4 Reasons for, and benefit of, the Xinjiang Xinjie Assets Disposal

Xinjiang Xinjie, its subsidiaries and associates are originally engaged in natural gas-related businesses as well as transmission and storage of refined petroleum products. As disclosed in the announcement and circular in respect of Xinjiang Xinjie Acquisitions dated 9 January 2009 and 22 January 2009 respectively, Xinjiang Xinjie will further develop its natural gas-related businesses going forward. As the Xinjie Oil Assets will not be used for the operation of Xinjiang Xinjie anymore, the Board considers that it is in the interest of Xinjiang Xinjie not to continue devoting additional resources, time and efforts to manage the Xinjie Oil Assets and it was committed to transfer the above assets back to PetroChina within one year and decides to dispose of the Xinjie Oil Assets accordingly.

The proceeds arising from the disposal of the Xinjie Oil Assets will be used as general working capital of Xinjiang Xinjie.

3.5 Relationship among the parties and connected transactions

As of the Latest Practicable Date, PetroChina was deemed to be interested in approximately 50.92% of the issued share capital of the Company. CNPC, the ultimate shareholder of the Company and PetroChina, was deemed to be interested in 2,627,557,342 Shares, representing approximately 53.23% of the issued share capital of the Company. Xinjiang Xinjie is a non-wholly-subsidiary of the Company. Both CNPC and PetroChina are the controlling shareholders of the Company. Pursuant to the Listing Rules, each of CNPC, PetroChina is a connected person of the Company and the Xinjiang Xinjie Assets Disposal constitutes a connected transaction of the Company.

The applicable percentage ratios referred to in Chapter 14A of the Listing Rules for the total consideration of the Xinjiang Xinjie Assets Disposal, combined, is more than 2.5%, the Xinjiang Xinjie Assets Disposal will constitute a discloseable and connected transaction subject to, among other things, the approval by the Independent Shareholders at the SGM by way of poll.

As CNPC and PetroChina are considered to have a material interest in the Xinjiang Xinjie Assets Disposal, CNPC and PetroChina and their respective associates shall abstain from voting on the resolution approving the Xinjiang Xinjie Assets Disposal.

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LETTER FROM THE BOARD

4. INFORMATION ON THE COMPANY AND OTHER PARTIES

(a) Information on the Company

The Company is an investment holding company. The principal activities of the Group are the exploration and production of crude oil and natural gas in the PRC, the Republic of Kazakhstan, the Sultanate of Oman, Peru, the Kingdom of Thailand, the Azerbaijan Republic and the Republic of Indonesia. The Group is also engaged in the city gas, vehicle fuel gas and related businesses in the PRC.

(b) Information on CNPC

CNPC is the controlling shareholder of the Company. CNPC is a petroleum and petrochemical conglomerate that was formed in the wake of the restructuring launched by the State Council to restructure the predecessor of CNPC, China National Petroleum Company ( ). CNPC is also a state-authorised investment corporation and state-owned enterprise. CNPC is an integrated energy corporation with businesses covering oil and gas exploration and development, refining and petrochemical, oil product marketing, oil and gas storage and transportation, oil trading, engineering and technical services and petroleum equipment manufacturing.

(c) Information on Huayou Group

Huayou, its subsidiaries and associates are principally engaged in the city gas related businesses, comprising production, sales and distribution of natural gas and the operation of compressed natural gas stations in the PRC. It is a non-wholly-owned subsidiary of the Company. Huayou, its subsidiaries and associates mainly provide natural gas for vehicular uses. They operate compressed natural gas stations in the Sichuan, Shandong, Hainan, Jiangsu, Shaanxi, Inner Mongolia and Hebei regions of the PRC. It is expected that Huayou Group will continue to expand its natural gas station network by constructing and/or acquiring natural gas stations in the PRC.

(d) Information on Shenzhen Petroleum

Shenzhen Petroleum is principally engaged in exploration and development of natural gas, the development of city gas and compressed natural gas business in the PRC. It is a wholly-owned subsidiary of CNPC.

(e) Information on Xinjiang Xinjie

Xinjiang Xinjie, its subsidiaries and associates are principally engaged in the city-gas related businesses, operation of natural gas stations, transmission and storage of refined products, the sale and transmission of natural gas, as well as the development of the technology of natural gas utilisation in the PRC. Xinjiang Xinjie, its subsidiaries and associates provide natural gas for domestic, industrial and vehicular uses. They operate around 40 gas stations in the PRC, both in Xinjiang and other parts

– 18 –

LETTER FROM THE BOARD

of the PRC. Xinjiang Xinjie is in the course of further developing its natural gas-related businesses and its transmission and storage of refined products businesses will cease after the disposal of the Xinjie Oil Assets.

(f) Information on PetroChina

PetroChina and its subsidiaries are mainly engaged in petroleum and natural gas-related activities, including:

(i) the exploration, development, production and sale of refined oil and natural gas;
(ii) the refining, transportation, storage and marketing of refined oil and petroleum products;
(iii) the production and sale of basic petrochemical products, derivative chemical products and other petrochemical products; and
(iv) the transmission of natural gas, refined oil and refined products, and the sale of natural gas.

5. SGM

The notice convening the SGM to be held at Harbour View Room III & IV, 3/F., The Excelsior, Hong Kong, 281 Gloucester Road, Causeway Bay, Hong Kong on 28 January 2010 at 11:00 a.m., at which ordinary resolutions will be proposed to approve, among other things, the Huayou Share Acquisition and the Xinjiang Xinjie Assets Disposal is set out on pages SGM-1 to SGM-3 of this circular.

A proxy form for use at the SGM is enclosed. Whether or not you intend to attend and vote at the SGM in person, you are requested to complete the form of proxy enclosed in accordance with the instructions printed thereon and return it to the principal office of the Company at Rooms 3907 – 3910, 39th Floor, 118 Connaught Road West, Hong Kong as soon as practicable but in any event not later than 48 hours before the time for holding the SGM or adjourned meeting (as the case may be), completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM should you so wish.

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LETTER FROM THE BOARD

6. RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 21 of this circular which contains its recommendation to the Independent Shareholders in relation to the Huayou Share Acquisition and the Xinjiang Xinjie Assets Disposal. Your attention is also drawn to the letter of advice from Guangdong Securities set out on pages 22 to 40 of this circular which contains its advice to the Independent Board Committee and the Independent Shareholders in relation to the Huayou Share Acquisition and the Xinjiang Xinjie Assets Disposal and the principal factors and reasons taken into account in arriving at its recommendation.

The Independent Board Committee, having taken into account the advice of Guangdong Securities, is of the opinion that the terms of each of the Huayou Share Acquisition Agreement, the Refined Oil Storage Assets Disposal Agreement and the Refined Oil Pipeline Transmission Assets Disposal Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole and recommends the Independent Shareholders to vote in favour of the ordinary resolutions in respect of the Huayou Share Acquisition and the Xinjiang Xinjie Assets Disposal to be proposed at the SGM.

The Board considers that the terms of the Huayou Share Acquisition Agreement, the Refined Oil Storage Assets Disposal Agreement and the Refined Oil Pipeline Transmission Assets Disposal Agreement are on normal commercial terms and are fair and reasonable and in the interests of the Company and the Shareholders as a whole and recommends the Independent Shareholders to vote in favour of the resolutions in respect of the Huayou Share Acquisition and the Xinjiang Xinjie Assets Disposal to be proposed at the SGM.

7. ADDITIONAL INFORMATION

Your attention is also drawn to the additional information set out in the appendices to this circular.

By Order of the Board Li Hualin Chairman

– 20 –

LETTER FROM INDEPENDENT BOARD COMMITTEE

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----- Start of picture text -----

CNPC (HONG KONG)
----- End of picture text -----

CNPC (HONG KONG) LIMITED

(incorporated in Bermuda with limited liability)

(Stock Code: 0135)

13 January 2010

To the Independent Shareholders

Dear Sir or Madam,

(1) CONNECTED TRANSACTION IN RELATION TO THE HUAYOU SHARE ACQUISITION (2) CONNECTED TRANSACTION IN RELATION TO DISPOSAL OF ASSETS FROM XINJIANG XINJIE TO PETROCHINA

We refer to the circular dated 13 January 2010 of the Company (the “ Circular ”) of which this letter forms part. Terms defined in the Circular shall have the same meanings herein unless the context otherwise requires.

We have been appointed as members of the Independent Board Committee to advise the Independent Shareholders in respect of each of the Huayou Share Acquisition and the Xinjiang Xinjie Assets Disposal, details of which are set out in the “Letter from the Board” in the Circular to the Shareholders.

Having taken into account the advice of Guangdong Securities, we consider that the terms of each of the Huayou Share Acquisition Agreement, the Refined Oil Storage Assets Disposal Agreement and the Refined Oil Pipeline Transmission Assets Disposal Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to approve the Huayou Share Acquisition and the Xinjiang Xinjie Assets Disposal as set out in the notice of the SGM to be held on 28 January 2010.

Yours faithfully, Independent Board Committee Lau Wah Sum Li Kwok Sing Aubrey Liu Xiao Feng

* For identification purpose only

– 21 –

LETTER FROM GUANGDONG SECURITIES

Set out below is the text of a letter received from Guangdong Securities, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Huayou Share Acquisition and the Xinjiang Xinjie Assets Disposal for the purpose of inclusion in this circular.

==> picture [170 x 27] intentionally omitted <==

Units 2505-06, 25/F. Low Block of Grand Millennium Plaza 181 Queen’s Road Central Hong Kong

13 January 2010

To: The independent board committee and the independent shareholders of CNPC (Hong Kong) Limited

Dear Sirs,

(1) CONNECTED TRANSACTION IN RELATION TO HUAYOU SHARE ACQUISITION (2) CONNECTED TRANSACTION IN RELATION TO DISPOSAL OF ASSETS FROM XINJIANG XINJIE TO PETROCHINA

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Huayou Share Acquisition and the Xinjiang Xinjie Assets Disposal, details of which are set out in the letter from the Board (the “ Board Letter ”) contained in the circular dated 13 January 2010 issued by the Company to the Shareholders (the “ Circular ”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

The Huayou Share Acquisition

On 25 December 2009, the Company submitted an application of a bid of RMB260,151,100 (equivalent to approximately HK$293,971,000) to the China Beijing Equity Exchange to acquire for the Target Shares, representing approximately 26.58% of the total equity interest in Huayou, from Shenzhen Petroleum. The open tender regarding the Target Shares was closed on 25 December 2009 and the Company was informed that it is the sole bidder. Subsequently on 30 December 2009, the Company entered into the Huayou Share Acquisition Agreement with Shenzhen Petroleum, pursuant to which the Company has conditionally agreed to purchase and Shenzhen Petroleum has conditionally agreed to sell the Target Shares at a consideration of RMB260,151,100 (equivalent to approximately HK$293,971,000) (the “ Huayou Share Consideration ”), which is equivalent to the base price of the open tender of RMB260,151,100.

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LETTER FROM GUANGDONG SECURITIES

As at the date of the Huayou Share Acquisition Agreement, CNPC, the ultimate shareholder of the Company, was deemed to be interested in 2,627,557,342 Shares, representing approximately 53.23% of the issued share capital of the Company. Moreover, Shenzhen Petroleum is a wholly-owned subsidiary of CNPC. Accordingly, pursuant to the Listing Rules, each of CNPC and Shenzhen Petroleum is a connected person of the Company and the Huayou Share Acquisition constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules.

In addition, since the applicable percentage ratio(s) as referred to in Chapters 14 and 14A of the Listing Rules for the Huayou Share Acquisition by itself is more than 5% but less than 25%, the Huayou Share Acquisition is conditional upon, among other things, the approval of the Independent Shareholders at the SGM by way of poll. As CNPC is considered to have material interest in the Huayou Share Acquisition, CNPC and its associates shall be required to abstain from voting on the relevant resolution approving the Huayou Share Acquisition.

The Xinjiang Xinjie Assets Disposal

On 18 December 2009, Xinjiang Xinjie, a non wholly-owned subsidiary of the Company, entered into the Refined Oil Storage Assets Disposal Agreement and the Refined Oil Pipeline Transmission Assets Disposal Agreement with PetroChina Northwestern Sales Branch and PetroChina Western Pipeline Branch, respectively, pursuant to which Xinjiang Xinjie has conditionally agreed to sell, and PetroChina Northwestern Sales Branch and PetroChina Western Pipeline Branch has each conditionally agreed to purchase, the Xinjie Refined Oil Storage Assets and Xinjie Refined Oil Pipeline Transmission Assets, respectively, at considerations of RMB83,914,553.80 (the “ Xinjie Refined Oil Storage Assets Consideration ”) and RMB500,912,810.38 (the “ Xinjie Refined Oil Pipeline Transmission Assets Consideration ”), respectively (equivalent to approximately HK$94,823,000 and HK$566,031,000 respectively).

As at the date of the Xinjiang Xinjie Assets Disposal Agreements, PetroChina was deemed to be interested in approximately 50.92% of the issued share capital of the Company. CNPC, the ultimate shareholder of the Company and PetroChina, was deemed to be interested in 2,627,557,342 Shares, representing approximately 53.23% of the issued share capital of the Company. Moreover, Xinjiang Xinjie is a non wholly-owned subsidiary of the Company and both CNPC and PetroChina are the controlling shareholders of the Company. Accordingly, pursuant to the Listing Rules, each of CNPC and PetroChina is a connected person of the Company and the Xinjiang Xinjie Assets Disposal constitutes a connected transaction for the Company.

Since the applicable percentage ratio(s) as referred to in Chapter 14A of the Listings Rules for the Xinjiang Xinjie Assets Disposal is more than 2.5%, the Xinjiang Xinjie Assets Disposal will be subject to, among other things, the approval by the Independent Shareholders at the SGM by way of poll. As CNPC and PetroChina are considered to have a material interest in the Xinjiang Xinjie Assets Disposal, CNPC, PetroChina and their respective associates shall abstain from voting on the relevant resolution(s) approving the Xinjiang Xinjie Assets Disposal.

– 23 –

LETTER FROM GUANGDONG SECURITIES

An Independent Board Committee comprising Dr. Lau Wah Sum, Mr. Li Kwok Sing Aubrey and Dr. Liu Xiao Feng (all being independent non-executive Directors) has been established to advise the Independent Shareholders on (i) whether the terms of each of the Huayou Share Acquisition Agreement and the Xinjiang Xinjie Assets Disposal Agreements are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; (ii) whether the Huayou Share Acquisition and Xinjiang Xinjie Assets Disposal are in the interests of the Company and the Shareholders as a whole; and (iii) how the Independent Shareholders should vote in respect of the relevant resolutions to approve the Huayou Share Acquisition Agreement and the Xinjiang Xinjie Assets Disposal Agreements, and the respective transactions contemplated thereunder at the SGM. We, Guangdong Securities Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in all these respects.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations that have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as at the Latest Practicable Date. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule 13.80 of the Listing Rules.

The Directors have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed, having made all reasonable enquiries, which to the best of their knowledge and belief, there are no other facts the omission of which would make any statement in the Circular misleading.

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company, CNPC, PetroChina, PetroChina Northwestern Sales Branch, PetroChina Western Pipeline Branch, Huayou, Shenzhen Petroleum, Zhejiang Jindi, Hengchanglong, Xihu Golf and Xinjiang Xinjie or their respective subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the Huayou Share Acquisition or the Xinjiang Xinjie Assets Disposal. In addition, we have no obligation to update this opinion to take into account events occurring after the issue of this letter. Nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

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LETTER FROM GUANGDONG SECURITIES

Lastly, where information in this letter has been extracted from published or otherwise publicly available sources, the sole responsibility of Guangdong Securities is to ensure that such information has been correctly extracted from the relevant sources.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the Huayou Share Acquisition and the Xinjiang Xinjie Assets Disposal, we have taken into consideration the following principal factors and reasons:

(A) HUAYOU SHARE ACQUISITION

(1) Background of the Huayou Share Acquisition

The Huayou Share Acquisition Agreement

On 30 November 2009, Shenzhen Petroleum put the Target Shares to open tender on the China Beijing Equity Exchange pursuant to the relevant PRC laws and regulations governing disposal of State-owned assets. On 25 December 2009, the Company submitted an application of a bid of RMB260,151,100 (equivalent to approximately HK$293,971,000) to the China Beijing Equity Exchange to acquire for the Target Shares, representing approximately 26.58% of the total equity interest in Huayou, from Shenzhen Petroleum. The open tender was closed on 25 December 2009 and the Company was informed that it is the sole bidder.

Subsequently on 30 December 2009, the Company entered into the Huayou Share Acquisition Agreement with Shenzhen Petroleum, pursuant to which the Company has conditionally agreed to purchase and Shenzhen Petroleum has conditionally agreed to sell the Target Shares at the Huayou Share Consideration, which is equivalent to the base price of the open tender of RMB260,151,100. As confirmed by the Directors, the Company intends to pay the Huayou Share Consideration out of the Group’s internal resources.

Completion of the Huayou Share Acquisition Agreement is conditional upon certain conditions precedent, being satisfied or waived by the Company (as the case may be), which are detailed in the Board Letter.

The Directors (excluding the independent non-executive Directors) confirmed that they are of the view that the terms and conditions of the Huayou Share Acquisition Agreement are on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole.

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LETTER FROM GUANGDONG SECURITIES

Information on the Group

The Company is an investment holding company. The principal activities of the Group are the exploration and production of crude oil and natural gas in the PRC, the Republic of Kazakhstan (“ Kazakhstan ”), the Sultanate of Oman, Peru, the Kingdom of Thailand, the Azerbaijan Republic and the Republic of Indonesia. The Group is also engaged in the city gas, vehicle fuel gas and related businesses in the PRC.

As referred to in the interim report of the Company for the six months ended 30 June 2009 (the “ 2009 Interim Report ”), during the first half of 2009, the Group acquired for and made capital contribution into three operating companies, namely CNPC Shennan Oil Technology Development Co., Ltd, Xinjiang Xinjie and China Natural Gas Co., Ltd., which are engaged in the natural gas distribution business (the “ Previous Acquisition ”). According to the 2009 Interim Report, the Previous Acquisition laid a foundation for the Group’s business transition and the development of its natural gas distribution business.

During the first half of 2009, the Company also formed new joint venture companies to further develop its natural gas distribution business in several local locations of the PRC, such as Shannxi Province and Hebei Province. As advised by the Directors, through the Previous Acquisition as well as the establishment of new joint ventures, the Group has officially commenced its business transition, and will pay additional effort on the development of natural gas end users sale. From the 2009 Interim Report, we noted that the Group will actively seek to participate in the construction of natural gas distribution pipelines so as to facilitate the linkage between resources and the market, and to develop the user market.

Set out below is a summary of the unaudited financial information of the Group for the six months ended 30 June 2009 and 2008 as extracted from the 2009 Interim Report:

	For the six	For the six
Consolidated income	months ended	months ended	Year on year
statement	30 June 2009	30 June 2008	change
		(restated)
		(Note)
	HK$’000	HK$’000	%
Turnover	2,005,725	3,602,569	(44.33)
Profit for the period	366,882	2,262,749	(83.79)
Net profit attributable to
equity holders of the
Company	316,356	1,649,298	(80.82)

Note: The financial information has been restated to give effect to the acquisitions of the natural gas distribution projects with all periods present as if the operations of the Group and the natural gas distribution projects have always been combined.

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LETTER FROM GUANGDONG SECURITIES

As depicted by the above table, the Group’s turnover for the six months ended 30 June 2009 amounted to approximately HK$2,005.73 million, representing a decrease of approximately 44.33% as compared with the corresponding period of last year. The profit attributable to equity holders of the Company for the six months ended 30 June 2009 amounted to approximately HK$316.36 million, representing a decrease of approximately 80.82% as compared with the corresponding period of last year. As stated in the 2009 Interim Report, the decrease in profit was mainly due to (i) the provision for tax duties by the CNPC-Aktobemunaigas Joint Stock Company (“ Aktobe ”) project carried out by the Group in Kazakhstan; and (ii) a drop in oil price. As a result of an increase in levy on tax duties arising from a change in relevant policies by Kazakhstan government, the Aktobe project is required to bear additional burden. In addition, with the drop of the international crude oil price in the first six months of 2009 as compared with the corresponding period of last year, the Group’s weighted average realised price of crude oil per barrel had declined substantially by approximately 52.81% during the first half of 2009 as compared with same period of last year. In this relation, we also noted from the Bloomberg that the Brent crude oil price has been sliding from its peak of US$146 per barrel in July 2008 to around US$40 to US$80 per barrel, representing a decline of approximately 73% to 45% respectively, during the first three quarters of 2009.

With reference to the 2009 Interim Report, the natural gas distribution business of the Group contributed approximately 43.58% of the Group’s total turnover for the six months ended 30 June 2009, as compared to approximately 21.20% for the six months ended 30 June 2008. Such expansion demonstrates the growing importance of the natural gas distribution business to the Group.

Information on Huayou

Huayou is a company established under the PRC laws and is a non wholly-owned subsidiary of the Company. As extracted from the Board Letter, Huayou, its subsidiaries and associates (the “ Huayou Group ”) are principally engaged in the city gas related businesses, comprising production, sales and distribution of natural gas and the operation of compressed natural gas stations in the PRC. The Huayou Group mainly provides natural gas for vehicular uses and it operates around 60 compressed natural gas stations in the Sichuan, Shandong, Hainan, Jiangsu, Shaanxi, Inner Mongolia and Hebei regions of the PRC.

As represented by the Directors, the Huayou Group is one of the pioneers in the production, sales and distribution of natural gas and the operation of compressed natural gas stations with cross boarder distribution network in the PRC. The Directors expected that the Huayou Group will continue to expand its natural gas business by developing, constructing and/or acquiring natural gas stations in the PRC.

In early 2009, the Company entered into the a capital injection agreement with Huayou and the existing shareholders of Huayou, pursuant to which the Company agreed to subscribe for 177,000,000 new shares of Huayou, representing

– 27 –

LETTER FROM GUANGDONG SECURITIES

approximately 51.01% of the total equity interest in Huayou at a consideration of RMB435,154,500 (the “ Huayou Capital Injection ”). Upon completion of the Huayou Share Acquisition, the Company’s shareholding in Huayou will increase from approximately 51.01% to 77.59%.

Set out below is a summary of the audited financial information of the Huayou Group for the eight months ended 31 August 2009 prepared based on the PRC GAAP (the “ Huayou August 2009 Financial Information ”) and each of the two years ended 31 December 2008 prepared based on the Hong Kong Financial Reporting Standards as provided by the Company:

	For the eight	For the year	For the year
	months ended	ended	ended
Consolidated Income	31 August	31 December	31 December
Statement	2009	2008	2007
	RMB	RMB	RMB
Turnover	391,384,081	512,132,628	353,531,348
Gross profit	108,662,467	151,940,850	102,574,365
Net profit	57,133,749	89,137,843	49,842,057
Profit attributable to
equity holder of
Huayou	41,960,146	71,968,603	40,495,717
Gross profit margin	27.76%	29.67%	29.01%
Net profit margin	14.60%	17.41%	14.10%
	As at	As at	As at
Consolidated Balance	31 August	31 December	31 December
Sheet	2009	2008	2007
	RMB	RMB	RMB
Total assets	1,488,975,885	760,280,033	631,400,479
Total liabilities	(508,611,038)	(277,596,038)	(249,570,286)
Net assets	980,364,847	482,683,995	381,830,193
Net assets (net of
minority interests)	844,223,108	367,407,229	295,438,626
Gearing ratio (total
borrowings/ the
shareholders’ funds)	0.41 times	0.11 times	0.38 times

As depicted by the above table, the Huayou Group recorded increasing turnover for the year ended 31 December 2008. Moreover, the Huayou Group enjoyed substantial improvement in net profit over the past two years.

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LETTER FROM GUANGDONG SECURITIES

With regard to the asset and liability position of the Huayou Group, the consolidated net assets of the Huayou Group had been expanding persistently and its gearing ratio (being calculated as total borrowings over the shareholders’ funds) was approximately 0.11 times as at 31 December 2008. As at 31 August 2009, the gearing ratio of the Huayou Group was approximately 0.41 times. In this respect, we noted from the Huayou August 2009 Financial Information that the aforesaid increase in the gearing ratio of the Huayou Group from approximately 0.11 times to approximately 0.41 times was mainly attributable to an increase in the total borrowings of the Huayou Group from approximately RMB53.5 million as at 31 December 2008 to approximately RMB406 million as at 31 August 2009.

(2) Reasons for the Huayou Share Acquisition

As aforementioned, it is the business strategy of the Group to explore into the natural gas distribution business. The Group implemented such business strategy through the Previous Acquisitions as well as the aforesaid establishment of new joint ventures during the six months ended 30 June 2009. As extracted from the 2009 Interim Report and as further confirmed by the Directors, under the firm support from CNPC, the Group intends to (i) accelerate the acquisition of the natural gas downstream business; (ii) develop the comprehensive utilisation projects for natural gas actively; and (iii) realise its business transition from the exploration and production of crude oil to the distribution of natural gas.

To further implement such business strategy, the Company entered into the Huayou Share Acquisition Agreement in respect of the Huayou Share Acquisition and we consider that the Huayou Share Acquisition is conducted in the ordinary and usual course of business of the Company given that the Huayou Share Acquisition is in line with the business strategy of the Group.

In order for us to form a better understanding on the future outlook of the natural gas market in the PRC, we have searched and found from an article issued by the National Development and Reform Commission of the PRC dated 5 February 2007 regarding the 11th five-year plan of the PRC. The said article revealed that the PRC government has decided to (i) improve the efficiency of energy utilisation by the development of natural gas, hydraulic power, renewable energy, new energy and other forms of clean energy; and (ii) advocate additional investments in natural gas infrastructure. Furthermore, we noted that a stimulus plan to spur vehicle demand and promote new energy cars ( ) was announced by the State Council of the PRC in 2009 and the plan may have an indirect positive impact on the natural gas market in the PRC in long term as natural gas is one type of new energies used by the new energy cars. In view of also that natural gas is a clean and efficient source of energy which has drawn rising attention and interest from the PRC government and enterprises, and natural gas has become one of the most rapidly growing sectors in the PRC energy industry, the Directors are optimistic about the future business prospects of the Huayou Group.

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LETTER FROM GUANGDONG SECURITIES

Having taken into account the potential positive outlook of the natural gas market in the PRC, together with the improving financial performance of the Huayou Group for the two years ended 31 December 2008 and the eight months ended 31 August 2009 as outlined under the paragraph headed “Information on Huayou” of this letter, we consider that the Huayou Share Acquisition is in the interests of the Company and the Shareholders as a whole.

(3) Principal terms of the Huayou Share Acquisition Agreement

The Huayou Share Consideration

The Huayou Share Consideration of RMB260,151,100 (equivalent to approximately HK$293,971,000) is equivalent to the base price of the approximate 26.58% interest in Huayou in the open tender on the China Beijing Equity Exchange. The Company understands that such base price is approximately 114% of the appraised net asset value of Huayou of RMB855,297,900 (equivalent to approximately HK$966,487,000) as at 31 August 2009, as set out in a valuation report of Huayou prepared by (China United Assets Appraisal Co., Ltd.), an independent qualified PRC valuer.

The Huayou Share Consideration of RMB260,151,100 represents (i) an implied historical price to earnings ratio (“ PER ”) of approximately 13.60 times to “26.58% of the audited net profit of the Huayou Group attributable to its equity holders for the year ended 31 December 2008” of approximately RMB19.13 million; and (ii) an implied price to book ratio (“ PBR ”) of approximately 1.16 times to “26.58% of the audited consolidated net asset value (net of minority interests) of the Huayou Group as at 31 August 2009” of approximately RMB224.39 million.

Trading multiples analysis for the Huayou Share Consideration

For the purpose of assessing the fairness and reasonableness of the Huayou Share Consideration, we have performed a trading multiples analysis which includes the PER and the PBR analysis. We have searched for companies listed on the main board of the Stock Exchange which are in similar lines of business as the Huayou Group, i.e. the sale and distribution of natural gas and the natural gas related business (the “ Natural Gas Comparables ”) for comparison. We have also excluded companies which recorded both losses and net liabilities during their latest financial years as per the relevant published financial information. To the best of our knowledge and endeavor, we found eight companies which met the said criteria. It should be noted that the businesses, operations and prospects of the Huayou Group are not exactly the same as the Natural Gas Comparables and we have not conducted any in-depth investigation into the businesses and operations of the Natural Gas Comparables. The Natural Gas Comparables are hence only used for illustrative purpose.

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LETTER FROM GUANGDONG SECURITIES

Set out below are the implied PERs and implied PBRs of the Natural Gas Comparables based on their closing prices as at 30 December 2009, being the date of the Huayou Share Acquisition Agreement, and their latest published financial information:

Company name		Year end	Market
(Stock code)	Principal business	date	capitalisation	PER	PBR
			(HK$ million)	(times)	(times)
			(Note 1)
CNPC (Hong	Exploration and	31/12/2008	50,352.54	15.17	5.26
Kong) Ltd.	production of crude
(135)	oil and natural gas
	in the PRC,
	Kazakhstan, the
	Sultanate of Oman,
	Peru, the Kingdom
	of Thailand, the
	Azerbaijan
	Republic and the
	Republic of
	Indonesia.
Sino Gas Group	Operation of	31/12/2008	596.43	N/A	1.28
Ltd. (260)	petroleum,
(Note 2)	compressed natural
	gas and liquefied
	petroleum gas
	refuelling stations,
	and trading of
	motor vehicles
	conversion parts
	and gas station
	equipment.
China Gas	Sales of piped gas,	31/3/2009	14,341.38	138.32	3.93
Holdings Ltd.	gas connection,
(384)	sales of LPG and
	sales of coke and
	gas appliances.
China Oil And	Investments in natural	31/12/2008	4,012.07	54.94	2.54
Gas Group	gas and energy
Ltd. (603)	related businesses.
Towngas China	Sale and distribution	31/12/2008	6,188.42	30.59	0.99
Co. Ltd.	of gas fuel and
(1083)	related products
	and gas pipelines.

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LETTER FROM GUANGDONG SECURITIES

Company name		Year end	Market
(Stock code)	Principal business	date	capitalisation	PER	PBR
			(HK$ million)	(times)	(times)
			(Note 1)
China Resources	City gas distribution	31/12/2008	16,378.95	69.17	9.21
Gas Group	(including natural
Ltd. (1193)	and petroleum gas)
	in the PRC.
XinAo Gas	Investment in, and	31/12/2008	20,813.96	29.20	3.91
Holdings Ltd.	the operation and
(2688)	management of, gas
	pipeline
	infrastructure and
	the sale and
	distribution of
	piped and bottled
	gas in the PRC.
Zhengzhou Gas	Sales of natural gas,	31/12/2008	1,859.73	10.88	2.10
Co. Ltd.	pressure control
(3928)	equipments and gas
	appliances to
	customers and
	construction of gas
	pipelines and the
	provision of
	renovation services
	of gas pipelines to
	local customers.
Minimum				10.88	0.99
Maximum				138.32	9.21
Median				30.59	3.23
Huayou Share				13.60	1.16
Consideration

Source: the Stock Exchange web site (www.hkex.com.hk)

Note:

As at 30 December 2009, being the date of the Huayou Share Acquisition Agreement.
Sino Gas Group Ltd. recorded net losses for its latest financial year.

As depicted by the above table, the implied PERs and implied PBRs of the Natural Gas Comparables ranged from approximately 10.88 times to 138.32 times, with median of approximately 30.59 times, and approximately 0.99 times to 9.21 times, with median of approximately 3.23 times, respectively; while the implied PER and implied PBR of the Huayou Share Consideration are approximately 13.60 times and 1.16 times respectively. Taking into account that (i) both of the implied PER and implied PBR of the Huayou Share Consideration are within the respective ranges of the Natural Gas Comparables; (ii) both of the implied PER and implied PBR of the Huayou Share Consideration are below the median of

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LETTER FROM GUANGDONG SECURITIES

those of the Natural Gas Comparables; and (iii) the Huayou Share Consideration is equivalent to the base price of the 26.58% interest in Huayou in the open tender, we are of the opinion that the Huayou Share Consideration is fair and reasonable so far as the Independent Shareholders are concerned.

For further information of the Shareholders, the PER and PBR as implied by the consideration of the Huayou Capital Injection (both being extracted from the circular of the Company dated 9 March 2009 regarding the Huayou Capital Injection) are approximately 9.57 times and 0.93 times respectively. In this respect, we noted that both of the implied PER and implied PBR of the Huayou Share Consideration are higher than the respective implied PER and implied PBR under the Huayou Capital Injection. Nonetheless, in view of that (i) the nature of transaction of the Huayou Capital Injection and the Huayou Share Acquisition is different; (ii) the Target Shares were put to open tender on the China Beijing Equity Exchange; (iii) the Huayou Capital Injection and the Huayou Share Acquisition happened at different time frame, we consider that the implied PER and implied PBR of the Huayou Capital Injection can only serve as a reference for Shareholders’ consideration.

Other terms of the Huayou Share Acquisition Agreement

We have also reviewed the other major terms of the Huayou Share Acquisition Agreement and are not aware of any terms which are uncommon. Consequently, we consider that the terms of the Huayou Share Acquisition Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

(4) Possible financial effects of the Huayou Share Acquisition

Huayou is a non wholly-owned subsidiary of the Company. Upon completion of the Huayou Share Acquisition, the Company’s shareholding in Huayou will increase from approximately 51.01% to 77.59%. The Directors confirmed that the financial results of Huayou Group will continue to be consolidated into the financial statements of the Group.

Effect on net assets

As extracted from the 2009 Interim Report, the unaudited consolidated net assets of the Group (net of minority interests) were approximately HK$9,574.45 million as at 30 June 2009. The Directors expected that the Group’s net assets (net of minority interests) would decrease upon completion of the Huayou Share Acquisition as the Huayou Share Consideration will be satisfied by the internal resources of the Group.

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LETTER FROM GUANGDONG SECURITIES

Effect on earnings

In light of the future business prospects of the Huayou Group, the Directors are of the view that the Huayou Share Acquisition would likely to have a positive impact on the future earnings of the Group.

Effect on gearing and working capital

As at 30 June 2009, the Group’s gearing level (being calculated as total borrowings divided by the equity attributable to owners of the Company) according to the 2009 Interim Report was approximately 24.89%. As confirmed by the Directors, the gearing level of the Group would be increased since the total borrowings of the Group would remain the same while the net assets of the Group would be reduced by the amount of the Huayou Share Consideration as a result of the Huayou Share Acquisition.

Regarding the working capital position of the Group, given that the Company will satisfy the Huayou Share Consideration by the internal resources of the Group, the Group’s working capital would be reduced due to the Huayou Share Acquisition.

It should be noted that the aforementioned analyses are for illustrative purpose only and does not purport to represent how the financial position of the Group will be upon completion of the Huayou Share Acquisition.

RECOMMENDATION ON THE HUAYOU SHARE ACQUISITION

Having considered the above factors and reasons, we are of the opinion that (i) the terms of the Huayou Share Acquisition Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (ii) the Huayou Share Acquisition is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the relevant resolution to be proposed at the SGM to approve the Huayou Share Acquisition Agreement and the transactions contemplated thereunder and we recommend the Independent Shareholders to vote in favour of the resolution in this regard.

(B) XINJIANG XINJIE ASSETS DISPOSAL

(1) Background of the Xinjiang Xinjie Assets Disposal

The Xinjiang Xinjie Assets Disposal Agreements

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LETTER FROM GUANGDONG SECURITIES

Northwestern Sales Branch and PetroChina Western Pipeline Branch has each conditionally agreed to purchase, the Xinjie Refined Oil Storage Assets and Xinjie Refined Oil Pipeline Transmission Assets, respectively, at considerations of RMB83,914,553.80 and RMB500,912,810.38, respectively (equivalent to approximately HK$94,823,000 and HK$566,031,000 respectively).

The Refined Oil Storage Assets Disposal Agreement

The Xinjie Refined Oil Storage Assets, which are assets used for the refined oil storage and transit business owned by Xinjiang Xinjie, include:

(i) buildings, other building structures, goods, machines and the ancillary equipment and facilities;
(ii) the rights and obligations under the agreements (including supplemental agreements and amendment agreements) entered into by Xinjiang Xinjie in relation to the assets used for the refined oil storage and transit business;
(iii) to the extent permitted by the applicable laws and regulations, the interests under permits, licenses, approvals, confirmations, authorisations or any other similar documents in respect of the refined oil storage and transit business;
(iv) any rights vis-a-vis third parties in relation to or arising out of the assets used for the refined oil storage and transit business;
(v) any business, financial, operational records, operational data, statistics and other relevant documents, etc. in relation to the assets used for the refined oil storage and transit business; and
(vi) any other assets included in the valuation report in respect of the Xinjie Refined Oil Storage Assets.

The Refined Oil Pipeline Transmission Assets Disposal Agreement

The Xinjie Refined Oil Pipeline Transmission Assets, which are assets used for the refined oil pipeline transmission business owned by Xinjiang Xinjie, include:

(i) buildings, other building structures, goods, machines and the ancillary equipment and facilities;
(ii) the rights and obligations under the agreements (including supplemental agreements and amendment agreements) entered into by Xinjiang Xinjie in relation to the assets used for refined oil pipeline transmission;

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LETTER FROM GUANGDONG SECURITIES

(iii) to the extent permitted by the applicable laws and regulations, the interests under permits, licenses, approvals, confirmations, authorisations or any other similar documents in respect of the refined oil pipeline transmission business;
(iv) any rights vis-a-vis third parties in relation to or arising out of the assets used for the refined oil pipeline transmission business;
(v) any business, financial, operational records, operational data, statistics and other relevant documents, etc. in relation to the assets used for the refined oil pipeline transmission business; and
(vi) any other assets included in the valuation report in respect of the Xinjie Refined Oil Pipeline Transmission Assets.

Completion of each of the Refined Oil Storage Assets Disposal Agreement and the Refined Oil Pipeline Transmission Assets Disposal Agreement is conditional upon certain conditions precedent, being satisfied or waived by the Company (as the case may be), which are detailed in the Board Letter. Besides that, completion of the Refined Oil Storage Assets Disposal Agreement is not conditional upon completion of the Refined Oil Pipeline Transmission Assets Disposal Agreement.

The Directors (excluding the independent non-executive Directors) confirmed that they are of the view that the terms and conditions of the Xinjiang Xinjie Assets Disposal Agreements are on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole.

(2) Reasons for the Xinjiang Xinjie Assets Disposal

According to the Board Letter, Xinjiang Xinjie, its subsidiaries and associate are originally engaged in natural gas related businesses as well as transmission and storage of refined petroleum products. With reference to the announcement and circular in respect of the Xinjiang Xinjie Acquisitions (as defined therein) dated 9 January 2009 and 22 January 2009 respectively, the Company acquired approximately 97.26% of the equity interest in Xinjiang Xinjie so as to further develop its natural gas related businesses. As confirmed by the Directors, the Xinjie Oil Assets will not be used for operation of Xinjiang Xinjie anymore and the Directors consider that it is in the interest of Xinjiang Xinjie not to continue devoting additional resources, time and efforts to manage the Xinjie Oil Assets. Given that Xinjiang Xinjie is also committed under the sale and purchase agreement governing the Xinjiang Xinjie Acquisitions to transfer the Xinjie Oil Assets back to PetroChina within one year from the date on which Xinjiang Xinjie is issued with the new industry and commerce registration, which as confirmed by the Directors was already issued to Xinjiang Xinjie on 13 March 2009, the Directors decided to dispose of the Xinjie Oil Assets.

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LETTER FROM GUANGDONG SECURITIES

From the Board Letter, we further noted that the audited net profits of Xinjiang Xinjie being attributable to both of the Xinjie Refined Oil Storage Assets and the Xinjie Refined Oil Pipeline Transmission Assets recorded a decline from the 2007 financial year to the 2008 financial year.

In view of all the above, we consider that the Xinjiang Xinjie Assets Disposal is in the interests of the Company and the Shareholders as a whole.

(3) Principal terms of the Xinjiang Xinjie Assets Disposal Agreements

Basis of the consideration

The Xinjie Refined Oil Storage Assets Consideration

The consideration payable in respect of the Refined Oil Storage Assets was RMB83,914,553.80 (equivalent to approximately HK$94,823,000). As advised by the Directors, the Xinjie Refined Oil Storage Assets Consideration was arrived at after arm’s length negotiations and with reference to the appraised value of the Xinjie Refined Oil Storage Assets as at 31 December 2008.

We computed that the Xinjie Refined Oil Storage Assets Consideration of RMB83,914,553.80 (equivalent to approximately HK$94,823,000) represents an implied PBR of approximately 1.39 times to “the net book value of the Xinjie Refined Oil Storage Assets of approximately RMB60,586,569 as at 31 December 2008”.

The Xinjie Refined Oil Pipeline Transmission Assets Consideration

The consideration payable in respect of the Xinjie Refined Oil Pipeline Transmission Assets was RMB500,912,810.38 (equivalent to approximately HK$566,031,000). As advised by the Directors, the Xinjie Refined Oil Pipeline Transmission Assets Consideration was arrived at after arm’s length negotiations and with reference to the appraised value of the Xinjie Refined Oil Transmission Assets as at 31 December 2008.

We computed that the Xinjie Refined Oil Pipeline Transmission Assets Consideration of RMB500,912,810.38 (equivalent to approximately HK$566,031,000) represents a PBR of approximately 1.11 times to “the net book value of the Xinjie Refined Oil Pipeline Transmission Assets of approximately RMB451,152,672 as at 31 December 2008”.

PBR analysis for the Xinjie Refined Oil Storage Assets Consideration and the Xinjie Refined Oil Pipeline Transmission Assets Consideration

For the purpose of assessing the fairness and reasonableness of the Xinjie Refined Oil Storage Assets Consideration and the Xinjie Refined Oil Pipeline Transmission Assets Consideration, we have performed a PBR analysis. Given that it is the Group’s intention to discontinue the businesses in relation to the Xinjie Oil Assets, the historical earning capabilities of the Xinjie Oil Assets may not be of relevance for estimating its existing and future value to Xinjiang Xinjie. Hence, the PER analysis was excluded from our comparison.

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LETTER FROM GUANGDONG SECURITIES

We have searched for companies listed on the Stock Exchange which are engaging in similar oil business and also include oil related assets in their asset portfolio (the “ Oil Assets Comparables ”) for comparison. We have also excluded companies which recorded net liabilities during their latest financial years as per the relevant published financial information. To the best of our knowledge and endeavor, we found four companies which met the said criteria. It should be noted that the businesses, operations and prospects of Xinjiang Xinjie being attributable to the Xinjie Oil Assets are not exactly the same as the Oil Assets Comparables and we have not conducted any in-depth investigation into the businesses and operations of the Oil Assets Comparables. The Oil Assets Comparables are hence only used for illustrative purpose.

Set out below are the implied PBRs of the Oil Assets Comparables based on their closing prices as at 18 December 2009, being the date of the Xinjiang Xinjie Assets Disposal Agreements, and their latest published financial information:

Company name			Market
(Stock code)	Principal business	Year end date	capitalisation	PBR
			(HK$ million)
			(Note)	(times)
Hans Energy Co.	Trading of petro-chemical	31/12/2008	1,194.44	2.10
Ltd. (554)	products, provision of
	transshipment and
	storage facilities, and
	port business.
Anhui Tianda Oil	Manufacture, sourcing and	31/12/2008	2,824.46	1.94
Pipe Co. Ltd.	distribution of
(839)	specialised seamless
	pipes.
Shengli Oil & Gas	Design, manufacture,	31/12/2008	4,464.00	2.85
Pipe Holdings Ltd.	value-added processing
(1080)	and servicing of spiral
	submerged arc welded
	pipes, or SSAW pipes
	that are used to transport
	crude oil, refined
	petroleum products and
	natural gas.
Titan Petrochemicals	Supply of oil products and	31/12/2008	1,286.24	0.61
Group Ltd. (1192)	provision of bunker
	refueling services;
	provision of logistic
	services (including oil
	storage and oil
	transportation); and
	shipbuilding and
	commencement of
	building of ship repair
	facilities.
Minimum				0.61
Maximum				2.85
Median				2.02
Xinjie Refined Oil Storage Assets Consideration				1.39
Xinjie Refined Oil Pipeline Transmission Assets		Consideration		1.11

– 38 –

LETTER FROM GUANGDONG SECURITIES

Source: the Stock Exchange web site (www.hkex.com.hk)

Note: As at 18 December 2009, being the date of the Xinjiang Xinjie Assets Disposal Agreements.

As depicted by the above table, the implied PBRs of the Oil Assets Comparables ranged from approximately 0.61 times to 2.85 times; while the implied PBR of the Xinjie Refined Oil Storage Assets Consideration and the Xinjie Refined Oil Pipeline Transmission Assets Consideration are approximately 1.39 times and 1.11 times respectively. We noted that the implied PBR of the Xinjie Refined Oil Storage Assets Consideration and the Xinjie Refined Oil Pipeline Transmission Assets Consideration fall within the respective range of the Oil Assets Comparables; and are hence in line with the market valuation on companies engaging in similar oil business which also include oil related assets in their asset portfolio.

Based on (i) the result of the above PBR analysis; (ii) the audited net profits of Xinjiang Xinjie being attributable to both of the Xinjie Refined Oil Storage Assets and the Xinjie Refined Oil Pipeline Transmission Assets recorded a decline from the 2007 financial year to the 2008 financial year; and (iii) Xinjiang Xinjie is committed under the sale and purchase agreement governing the Xinjiang Xinjie Acquisitions to transfer the Xinjie Oil Assets back to PetroChina within one year from the date on which Xinjiang Xinjie is issued with the new industry and commerce registration, we are of the opinion that the Xinjie Refined Oil Storage Assets Consideration and the Xinjie Refined Oil Pipeline Transmission Assets Consideration are fair and reasonable so far as the Independent Shareholders are concerned.

Other terms of the Xinjiang Xinjie Assets Disposal Agreements

We have also reviewed the other major terms of the Xinjiang Xinjie Assets Disposal Agreements and are not aware of any terms which are uncommon. Consequently, we consider that the terms of the Xinjiang Xinjie Assets Disposal Agreements are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

(4) Possible financial effects of the Xinjiang Xinjie Assets Disposal

Financial effects of the Xinjie Refined Oil Storage Assets Disposal

Accordingly to the Board Letter, a projected gain of approximately RMB23,000,000 (equivalent to approximately HK$25,990,000) is expected to be accrued to the Group as a result of the Xinjie Refined Oil Storage Assets Disposal, being the difference between the Xinjie Refined Oil Storage Assets Consideration of RMB83,914,553.80 (equivalent to approximately HK$94,823,000) and the net book value of the Xinjie Refined Oil Storage Assets of approximately RMB60,586,569 as at 31 December 2008.

– 39 –

LETTER FROM GUANGDONG SECURITIES

As extracted from the Board Letter, the proceeds arising from the disposal of the Xinjie Refined Oil Storage Assets will be used as general working capital of Xinjiang Xinjie, the Directors thus expected that the working capital of Xinjiang Xinjie (as well as the Group) would be increased upon completion of the Xinjie Refined Oil Storage Assets Disposal.

Financial effects of the Xinjie Refined Oil Pipeline Transmission Assets Disposal

Accordingly to the Board Letter, a projected gain of approximately RMB49,000,000 (equivalent to approximately HK$55,370,000) is expected to be accrued to the Group as a result of the Xinjie Refined Oil Pipeline Transmission Assets Disposal, being the difference between the Xinjie Refined Oil Pipeline Transmission Assets Consideration of RMB500,912,810.38 (equivalent to approximately HK$566,031,000) and the net book value of the Xinjie Refined Oil Pipeline Transmission Assets of approximately RMB451,152,672 as at 31 December 2008.

As extracted from the Board Letter, the proceeds arising from the disposal of the Xinjie Refined Oil Pipeline Transmission Assets will be used as general working capital of Xinjiang Xinjie, the Directors thus expected that the working capital of Xinjiang Xinjie (as well as the Group) would be increased upon completion of the Xinjie Refined Oil Pipeline Transmission Assets Disposal.

RECOMMENDATION ON THE XINJIANG XINJIE ASSETS DISPOSAL

Having considered the above factors and reasons, we are of the opinion that (i) the terms of the Xinjiang Xinjie Assets Disposal Agreements are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (ii) the Xinjiang Xinjie Assets Disposal is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the relevant resolution(s) to be proposed at the SGM to approve the Xinjiang Xinjie Assets Disposal Agreements and the transactions contemplated thereunder and we recommend the Independent Shareholders to vote in favour of the resolution(s) in this regard.

Yours faithfully, For and on behalf of

Guangdong Securities Limited Graham Lam Managing Director

– 40 –

APPENDIX I VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

The following is the text of a letter, summary of values and valuation certificates, prepared for the purpose of incorporation in this circular received from BMI Appraisals Limited, an independent valuer, in connection with its valuations as at 31 October 2009 of the properties to be acquired by the Huayou Group located in the People’s Republic of China.

==> picture [291 x 99] intentionally omitted <==

13 January 2010

The Directors

CNPC (Hong Kong) Limited

Rooms 3907-3910, 39[th] Floor Yat Chau International Plaza No. 118 Connaught Road West Sheung Wan, Hong Kong

Dear Sirs,

INSTRUCTIONS

We refer to the instructions from CNPC (Hong Kong) Limited (the “Company”) for us to value the properties held by China Natural Gas Co., Ltd. ( ) (“Huayou”) and/or its subsidiaries (hereinafter referred to as “Huayou Group”) located in the People’s Republic of China (the “PRC”). We confirm that we have conducted inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market values of the properties as at 31 October 2009 (the “date of valuation”).

BASIS OF VALUATION

Our valuations of the properties have been based on the Market Value, which is defined as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

– 41 –

APPENDIX I VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

PROPERTY CATEGORISATIONS

In the course of our valuations, the properties are categorised into the following Groups:

Group I – Properties held by Huayou Group for owner-occupation in the PRC

Group II – Property held by Huayou Group for future development in the PRC Group III – Property held by Huayou Group for investment in the PRC

VALUATION METHODOLOGIES

In valuing Property Nos. 4, 19 and 20, we have valued them on an open market basis by the Comparison Approach assuming sale in their existing states with the benefit of vacant possession and by making reference to comparable sales evidence as available in the relevant market. Appropriate adjustments have then been made to account for the differences between the properties and the comparables in terms of age, size, time, location and other relevant factors.

For Property No. 20, we have also adopted the Investment Approach where appropriate by taking into account the current passing rent of the property being held under existing tenancy and the reversionary potential of the tenancy if it has been or would be let to tenants.

In valuing Property Nos. 1 – 3 and 5 – 13 in the PRC, due to the inherent nature of usage and lack of market sales comparables, the properties have been valued by the Depreciated Replacement Cost Approach. Depreciated replacement cost is defined as “the aggregate amount of the value of the land for the existing use or a notional replacement site in the same locality, and the new replacement cost of the buildings and other site works, from which appropriate deductions may then be made to allow for the age, condition, economic and functional obsolescence and environmental factors, etc.; all of these might result in the existing property being worth less to the undertaking in occupation than would a new replacement.” This basis has been used due to the lack of an established market upon which to base comparable transactions. However this approach generally furnishes the most reliable indication of value for assets without a known used market.

For Property Nos. 14 – 18, we cannot attribute any commercial values to the properties due to the absence of relevant title documents.

TITLE INVESTIGATION

We have been provided with copies of title documents and have been advised by the Company that no further relevant documents have been produced. However, we have not examined the original documents to verify ownership or to ascertain the existence of any amendment documents, which may not appear on the copies handed to us. In the course of

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APPENDIX I VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

our valuations, we have relied upon the advice and information given by the Company and its PRC legal adviser, Kaiwen Law Firm ( ), regarding the titles of the properties. All documents have been used for reference only.

In valuing the properties except Property Nos. 15-19 in the PRC, we have relied on the advice given by the Company and its PRC legal adviser that Huayou Group has valid and enforceable titles to the properties which are freely transferable, and has free and uninterrupted rights to use the same, for the whole of the unexpired terms granted subject to the payment of annual government rent/land use fees and all requisite land premium/ purchase consideration payable have been fully settled.

VALUATION ASSUMPTIONS

Our valuations have been made on the assumption that the properties are sold in the market without the benefit of deferred terms contract, leaseback, joint venture, management agreement or any similar arrangement which would serve to affect the values of the properties.

In addition, no account has been taken of any option or right of pre-emption concerning or affecting the sale of the properties and no forced sale situation in any manner is assumed in our valuations.

VALUATION CONSIDERATIONS

We have inspected the properties externally and where possible, the interior of the properties. In the course of our inspections, we did not note any serious defects. However, no structural surveys have been made. We are, therefore, unable to report whether the properties are free from rot, infestation or any other structural defects. No tests were carried out on any of the services.

In the course of our valuations, we have relied to a considerable extent on the information given by the Company and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenures, particulars of occupancy, site/ floor areas, completion dates of the buildings, identification of the properties and other relevant information.

Except otherwise stated, dimensions, measurements and areas included in the valuation certificates are based on information contained in the leases and other documents provided to us and are therefore only approximations.

We have not carried out detailed on-site measurements to verify the correctness of the site/floor areas in respect of the properties but have assumed that the site/floor areas shown on the documents handed to us are correct.

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APPENDIX I VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

We have no reason to doubt the truth and accuracy of the information provided to us by the Company and we have relied on your advice that no material facts have been omitted from the information so supplied. We consider that we have been provided with sufficient information for us to reach an informed view.

No allowance has been made in our valuations for any charges, mortgages or amounts owing on the properties or for any expenses or taxation, which may be incurred in effecting a sale or purchase.

Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature, which could affect their values.

Our valuations have been prepared in accordance with the HKIS Valuation Standards on Properties (First Edition 2005) published by the Hong Kong Institute of Surveyors.

Our valuations have been prepared under the generally accepted valuation procedures and are in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

REMARKS

We hereby certify that we neither have any present nor any prospective interest in the Company or Huayou Group or the appraised properties or the values reported.

Unless otherwise stated, all money amounts stated herein are in Renminbi (RMB) and no allowances have been made for any exchange transfer.

Our summary of values and the valuation certificates are attached herewith.

Yours faithfully, For and on behalf of

BMI APPRAISALS LIMITED

Dr. Tony C.H. Cheng Joannau W.F. Chan BSc, MUD, MBA (Finance), MSc (Eng), PhD (Econ), BSc. MSc. MRICS MHKIS RPS(GP) MHKIS, MCIArb, AFA, SIFM, FCIM, Senior Director MASCE, MIET, MIEEE, MASME, MIIE Managing Director

Notes:

Dr. Tony C.H. Cheng is a member of The Hong Kong Institute of Surveyors (General Practice) who has over 17 years’ experience in valuations of properties in Hong Kong and the People’s Republic of China.

Ms. Joannau W.F. Chan is a member of The Hong Kong Institute of Surveyors (General Practice) who has over 17 years’ experience in valuations of properties in Hong Kong and over 11 years’ experience in valuations of properties in the People’s Republic of China.

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

SUMMARY OF VALUES

==> picture [426 x 494] intentionally omitted <==

----- Start of picture text -----

||||||||||
|---|---|---|---|---|---|---|---|---|
|Market|Value|
|in|existing|state|
|No.|Property|as|at|31|October|2009|
|RMB|
|Group|I|–|Properties|held|by|Huayou|Group|for|
|owner-occupation|in|the|PRC|
|1.|An|industrial|complex|located|at|4,800,000|
|No.|22|Xing|Guang|Road|Central,|
|Longquanyi|District,|
|Chengdu|City,|
|Sichuan|Province,|
|The|PRC|
|2.|A|Gas|Filling|Station|with|24,800,000|
|ancillary|buildings|and|structures|in|
|No.|12|Er|Xian|Qiao|Dong|Road,|
|Chenghua|District,|
|Chengdu|City,|
|Sichuan|Province,|
|The|PRC|
|3.|A|Gas|Filling|Station|with|330,000|
|ancillary|buildings|and|structures|in|
|No.|9|Huayang|Gucheng|Village,|
|Shuangliu|County,|
|Chengdu|City,|
|Sichuan|Province,|
|The|PRC|

----- End of picture text -----

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

No. Property

Market Value in existing state as at 31 October 2009 RMB

==> picture [426 x 455] intentionally omitted <==

----- Start of picture text -----

|||||||||
|---|---|---|---|---|---|---|---|
|4.|Various|units|on|5|[th]|Floor,|2,100,000|
|Block|A,|
|Composite|Building,|
|Shuangnan|6|[th]|Group,|
|Yongfeng|Township,|
|Wuhou|District,|
|Chengdu|City,|
|Sichuan|Province,|
|The|PRC|
|5.|A|Gas|Filling|Station|with|9,500,000|
|ancillary|buildings|and|structures|in|
|No.|4|San|Guan|Tang|Street,|
|Jinjiang|District,|
|Chengdu|City,|
|Sichuan|Province,|
|The|PRC|
|6.|A|Gas|Filling|Station|with|1,040,000|
|ancillary|buildings|and|structures|
|in|Sanyuan|Village|1|[st]|Group,|
|Shiyang|Village,|
|High|and|New|Technology|District,|
|Chengdu|City,|
|Sichuan|Province,|
|The|PRC|

----- End of picture text -----

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

No. Property

Market Value in existing state as at 31 October 2009 RMB

==> picture [426 x 439] intentionally omitted <==

----- Start of picture text -----

||||||||
|---|---|---|---|---|---|---|
|7.|A|Gas|Filling|Station|with|5,000,000|
|ancillary|buildings|and|structures|in|
|Xilin|Village|4|[th]|Group,|
|Qinglong|Village,|
|Chenghua|District,|
|Chengdu|City,|
|Sichuan|Province,|
|The|PRC|
|8.|A|Gas|Filling|Station|with|3,970,000|
|ancillary|buildings|and|structures|in|
|No.|138|Shu|Zhou|Nan|Road,|
|Chongyang|Town,|
|Chongzhou|City,|
|Chengdu|City,|
|Sichuan|Province,|
|The|PRC|
|9.|A|Gas|Filling|Station|with|930,000|
|ancillary|buildings|and|structures|in|
|Dashan|Village|4|[th]|Group,|
|Dashanpu|Town,|
|Daan|District,|Zigong|City,|
|Sichuan|Province,|
|The|PRC|

----- End of picture text -----

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

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----- Start of picture text -----

||||||||
|---|---|---|---|---|---|---|
|Market|Value|
|in|existing|state|
|No.|Property|as|at|31|October|2009|
|RMB|
|10.|A|Gas|Filling|Station|with|4,460,000|
|ancillary|buildings|and|structures|in|
|No.|8|Guandu|Village,|
|Jinyuan|Town,|
|Dayi|County,|
|Chengdu|City,|
|Sichuan|Province,|
|The|PRC|
|11.|A|Gas|Filling|Station|with|2,600,000|
|ancillary|buildings|and|structures|in|
|Nei|Bei|Road|North,|
|Central|District,|
|Neijiang|City,|
|Sichuan|Province,|
|The|PRC|
|12.|A|Gas|Filling|Station|with|780,000|
|ancillary|buildings|and|structures|in|
|Lower|Maanshan|Transformer|Station,|
|Central|District,|
|Neijiang|City,|
|Sichuan|Province,|
|The|PRC|

----- End of picture text -----

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

==> picture [426 x 507] intentionally omitted <==

----- Start of picture text -----

|||||||||
|---|---|---|---|---|---|---|---|
|Market|Value|
|in|existing|state|
|No.|Property|as|at|31|October|2009|
|RMB|
|13.|A|Gas|Filling|Station|with|2,740,000|
|ancillary|buildings|and|structures|in|
|Zhan|Qian|Dong|Road,|
|Xin|Cheng|Bei|Street|North,|
|Shulinzhao|Town,|
|Ordos|City,|
|Inner|Mongolia|
|Autonomous|Region,|
|The|PRC|
|14.|Various|Gas|Filling|Stations|with|No|Commercial|
|ancillary|buildings|and|structures|in|Value|
|Baotou|City,|
|Inner|Mongolia|
|Autonomous|Region,|
|The|PRC|
|15.|A|Gas|Filling|Station|with|No|Commercial|
|ancillary|buildings|and|structures|in|Value|
|Tian|Village,|
|Yongle|Town,|
|Jingyang|County,|
|Shaanxi|Province,|
|The|PRC|

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

No. 16. 17. 18.	Property Market Value in existing state as at 31 October 2009 RMB Various Gas Filling Stations with ancillary buildings and structures in Taian City, Shandong Province, The PRC No Commercial Value A Gas Filling Station with ancillary buildings and structures in Zibo City, Shandong Province, The PRC No Commercial Value A Gas Filling Station with ancillary buildings and structures in Shi Lian Road, Yuhua District, Shijiazhuang City, Hebei Province, The PRC No Commercial Value Sub-total: 63,050,000	Property Market Value in existing state as at 31 October 2009 RMB Various Gas Filling Stations with ancillary buildings and structures in Taian City, Shandong Province, The PRC No Commercial Value A Gas Filling Station with ancillary buildings and structures in Zibo City, Shandong Province, The PRC No Commercial Value A Gas Filling Station with ancillary buildings and structures in Shi Lian Road, Yuhua District, Shijiazhuang City, Hebei Province, The PRC No Commercial Value Sub-total: 63,050,000
		63,050,000

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

Market Value in existing state as at 31 October 2009 RMB

==> picture [427 x 470] intentionally omitted <==

----- Start of picture text -----

|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|No.|Property|as|at|31|October|2009|
|RMB|
|Group|II|–|Property|held|by|Huayou|Group|for|future|development|in|the|PRC|
|19.|A|parcel|of|land|in|16,500,000|
|Xinqiao|Industrial|Concentration|Zone,|
|Guangan|District,|
|Guangan|City,|
|Sichuan|Province,|
|The|PRC|
|Sub-total:|16,500,000|
|Group|III|–|Property|held|by|Huayou|Group|for|investment|in|the|PRC|
|20.|A|composite|building|in|6,100,000|
|No.|81|Bei|Street,|
|Liucheng|Town,|
|Chengdu|City,|
|Sichuan|Province,|
|The|PRC|
|Sub-total:|6,100,000|
|Grand|Total:|85,650,000|

----- End of picture text -----

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

VALUATION CERTIFICATE

Market Value Particulars of in existing state Property Description and tenure occupancy as at 31 October 2009 RMB 1. An industrial complex The property comprises a As advised by the 4,800,000 located at parcel of land with a site area Company, portion of No. 22 Xing Guang Road of approximately 15,487.73 the property was (Please see Central, sq.m. (or about 166,709.93 subject to various Note 3 below) Longquanyi District, sq.ft.) upon which 4 buildings tenancies with the Chengdu City, with ancillary structures, latest term expiring on Sichuan Province, mainly completed in 2004, 31 August 2010 The PRC were erected. yielding a total monthly rent of The total gross floor area approximately (“GFA”) of the property is RMB35,000 approximately 7,132.66 sq.m. (“tenancies”) for (or about 76,775.95 sq.ft.). industrial and office uses and the The land use rights of the remaining portion of property have been granted for the property is a term expiring on 19 occupied by the September 2055 for industrial Group for office, use. canteen, gatehouse and ancillary uses.

Notes: -

Pursuant to a State-owned Land Use Rights Certificate, Long Guo Yong (2005) Di No. 58262 ( ), issued by Chengdu City Longquanyi District People’s Government ( ) dated 16 November 2005, the land use rights of the property with a site area of 15,487.73 sq.m. have been granted to Huayou for a term expiring on 19 September 2055 for industrial use.

==> picture [403 x 153] intentionally omitted <==

----- Start of picture text -----

||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|2.|Pursuant|to|4|Building|Ownership|Certificates|issued|to|Huayou|by|Chengdu|City|Longquanyi|
|District|Real|Estate|Administration|Bureau|(|)|dated|22|January|2009,|4|
|buildings|of|the|property|with|a|total|GFA|of|7,132.66|sq.m.|is|legally|owned|by|Chengdu|Public|
|Transport|Compressed|Natural|Gas|Co.,|Ltd.|The|details|of|which|are|summarized|in|the|table|below:|
|No.|Certificate|No.|Use|GFA|
|sq.m.|
|1|0156243|Office|4,126.49|
|2|0156244|Workshop|2,661.82|
|3|0156245|Other|323.02|
|4|0156246|Other|21.33|
|Total:|7,132.66|

----- End of picture text -----

In arriving at our valuation, we cannot attribute any commercial value to the buildings and structures (other than those mentioned in Note 2) of the property without relevant title documents as at the date of valuation.

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APPENDIX I VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate Yes Building Ownership Certificates Yes

The opinion of the PRC legal adviser to the Company contains, inter alia, the following:
a. Huayou is in possession of a proper legal title to the land of the property and is entitled to transfer it with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;
d. The existing use of the property excluding the buildings and structures without relevant title documents is in compliance with the local planning regulations and has been approved by the relevant government authorities;
e. The tenancy agreements are legally valid and enforceable under the PRC laws. However, Huayou has not registered such tenancy agreements in the relevant government departments. As confirmed by Huayou, Huayou is in the process of applying for the registration of the tenancy agreements. After the registration, the tenancy agreements can be enforced against the third party interests on the property; and
f. The property excluding the buildings and structures without relevant title documents can be freely disposed of in the open market.

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

VALUATION CERTIFICATE

Market Value
Particulars of in existing state
Property Description and tenure occupancy as at 31 October 2009 RMB
1. A Gas Filling Station The property comprises a As advised by the 24,800,000 with ancillary buildings parcel of land with a site area Company, portion of and structures in of approximately 6,626.61 the land is subject to (Please see No. 12 Er Xian Qiao sq.m. (or about 71,328.83 a tenancy with a term Note 2 below) Dong Road, sq.ft.) upon which a gas of 15 years Chenghua District, filling station with ancillary commencing on 4 Chengdu City, buildings and structures, March 2003 at an Sichuan Province, completed in about 2007, were initial annual rent of The PRC erected. RMB110,000 (“tenancy”) for
As advised by the Company, carparking use and the the total gross floor area of remaining portion of the buildings and structures of the property was the property without relevant occupied by Huayou title document is Group as a gas filling approximately 1,148.2 sq.m. station as at the date (or about 12,359.22 sq.ft.). of valuation.

The land use rights of the property have been granted for a term expiring on 25 October 2045 for composite use.

Notes: -

Pursuant to a State-owned Land Use Rights Certificate, Cheng Guo Yong (2001) Zi Di No. 1254 ( ), issued by Chengdu City Land and Resources Bureau ( ) dated 9 November 2001, the land use rights of the property with a site area of 6,626.61 sq.m. have been granted to Huayou for a term expiring on 25 October 2045 for composite use.
In arriving at our valuation, we cannot attribute any commercial value to the buildings and structures of the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate Yes Building Ownership Certificate No

The opinion of the PRC legal adviser to the Company contains, inter alia, the following:
a. Huayou is in possession of a proper legal title to the property excluding the buildings and structures without relevant title documents and is entitled to transfer it with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;

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APPENDIX I VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

d. The existing use of the property excluding the buildings and structures without relevant title documents is in compliance with the local planning regulations and has been approved by the relevant government authorities;
e. The tenancy agreement is legally valid and enforceable under the PRC laws. However, Huayou has not registered such tenancy agreement in the relevant government departments. As confirmed by Huayou, Huayou is in the process of applying for the registration of the tenancy agreement. After the registration, the tenancy agreement can be enforced against the third party interests on the property;
f. The property excluding the buildings and structures without relevant title documents can be freely disposed of in the open market; and
g. Huayou Group is in the process of applying for the relevant building ownership documents which can be obtained upon the approval from relevant Government Departments and settlement of relevant land premium. However, Huayou Group has undertaken to be responsible for any loss arising from the unsuccessful application of title documents.

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

VALUATION CERTIFICATE

Market Value
Particulars of in existing state
Property Description and tenure occupancy as at 31 October 2009 RMB
1. A Gas Filling Station The property comprises a As advised by the 330,000 with ancillary buildings parcel of land with a site area Company, the property and structures in of approximately 1,866.68 was occupied by (Please see No. 9 Huayang Gucheng sq.m. (or about 20,092.94 Huayou Group as a Note 2 below) Village, sq.ft.) upon which a gas gas filling station as Shuangliu County, filling station with ancillary at the date of Chengdu City, buildings and structures, valuation. Sichuan Province, completed in between 1995 The PRC and 2008, were erected. As advised by the Company, the total gross floor area of the buildings and structures of the property without relevant title document is approximately 433.82 sq.m. (or about 4,669.64 sq.ft.).

The land use rights of the property have been granted for a term expiring on 12 November 2052 for industrial use.

Notes: -

Pursuant to a State-owned Land Use Rights Certificate, Chuan Guo Yong (2003) Zi Di No. 00184 ( ), issued by Sichuan Province Land and Resources Bureau ( ) dated 22 January 2003, the land use rights of the property with a site area of 1,866.68 sq.m. have been granted to Shuangliu Huayou Natural Gas Co., Ltd. ( ) for a term expiring on 12 November 2052 for industrial use.
In arriving at our valuation, we cannot attribute any commercial value to the buildings and structures of the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate Yes Building Ownership Certificate No

The opinion of the PRC legal adviser to the Company contains, inter alia, the following:
a. Shuangliu Huayou Natural Gas Co., Ltd. is in possession of a proper legal title to the property excluding the buildings and structures without relevant title documents and is entitled to transfer it with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

d. The existing use of the property excluding the buildings and structures without relevant title documents is in compliance with the local planning regulations and has been approved by the relevant government authorities;
e. The property excluding the buildings and structures without relevant title documents can be freely disposed of in the open market; and
f. Huayou Group is in the process of applying for the relevant building ownership documents which can be obtained upon the approval from relevant Government Departments and settlement of relevant land premium. However, Huayou Group has undertaken to be responsible for any loss arising from the unsuccessful application of title documents.
As advised by the Company, Shuangliu Huayou Natural Gas Co., Ltd. is effectively owned as to 71.3% by Huayou.

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

VALUATION CERTIFICATE

Market Value
Particulars of in existing state
Property Description and tenure occupancy as at 31 October 2009 RMB
1. Various units on The property comprises As advised by the 2,100,000 5[th] Floor, various office units in an Company, the property Block A, office building which was was occupied by Composite Building, completed in about 2005. Huayou Group for Shuangnan 6[th] Group, office use as at the Yongfeng Township, The total gross floor area date of valuation. Wuhou District, (“GFA”) of the property is Chengdu City, approximately 489.17 sq.m. Sichuan Province, (or about 5,265.43 sq.ft.). The PRC The land use rights of the property have been granted for a term expiring on 14 April 2038 for composite use.

Notes: -

Pursuant to 2 State-owned Land Use Rights Certificates, Wu Gong Yong (2005) Di Nos. 20714 and 20715 ( ) both issued by Chengdu City People’s Government, the land use rights of the property have been granted to Chengdu Public Transport Compressed Natural Gas Co., Ltd. ( ) for a term expiring on 14 April 2038 for composite use.
Pursuant to 2 Building Ownership Certificates both issued by Chengdu City Real Estate Administration Bureau, the property is legally owned by Chengdu Public Transport Compressed Natural Gas Co., Ltd. The details of which are summarized in the table below:

No. Certificate No. Use 1 1252242 Office 2 1252245 Office Total:	GFA sq.m. 325.06 164.11
	489.17

The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate Yes Building Ownership Certificate Yes

The opinion of the PRC legal adviser to the Company contains, inter alia, the following:
a. Chengdu Public Transport Compressed Natural Gas Co., Ltd. is in possession of a proper legal title to the property and is entitled to transfer the property with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;

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APPENDIX I VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

d. The existing use of the property is in compliance with the local planning regulations and has been approved by the relevant government authorities; and
e. The property can be freely disposed of in the open market.
As advised by the Company, Chengdu Public Transport Compressed Natural Gas Co., Ltd. is effectively owned as to 62.45% by Huayou.

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

VALUATION CERTIFICATE

Market Value in
Particulars of existing state
Property Description and tenure occupancy as at 31 October 2009 RMB
1. A Gas Filling Station The property comprises a As advised by the 9,500,000 with ancillary buildings parcel of land with a site area Company, the property and structures in of approximately 1,502.41 was occupied by (Please see No. 4 San Guan sq.m. (or about 16,171.94 Huayou Group as a Note 4 below) Tang Street, sq.ft.) upon which a gas gas filling station as Jinjiang District, filling station with ancillary at the date of Chengdu City, buildings and structures, valuation. Sichuan Province, completed in about 2001, were The PRC erected. The gross floor area (“GFA”) of the property is approximately 474.33 sq.m. (or about 5,105.69 sq.ft.). Besides, as advised by the Company, the total GFA of the buildings and structures of the property without relevant title documents is approximately 20 sq.m. (or about 215.28 sq.ft.).

The land use rights of the property have been granted for a term expiring on 19 October 2043 for commercial use.

Notes: -

Pursuant to a State-owned Land Use Rights Certificate, Cheng Guo Yong (2004) Di No. 1689 ( (2004) 1689 ), issued by Chengdu City People’s Government, the land use rights of the property with a site area of 1,502.41 sq.m. have been granted to Chengdu Public Transport Compressed Natural Gas Co., Ltd. for a term expiring on 19 October 2043 for commercial use.
Pursuant to a Building Ownership Certificate, Rong Fang Quan Zheng Cheng Fang Jian Zheng Zi Di No. 1144917 ( 1144917 ) issued by Chengdu City Real Estate Administration Bureau, the property with a GFA of 474.33 sq.m. is legally owned by Chengdu Public Transport Compressed Natural Gas Co., Ltd. for other use.
As advised by the Company, the property is subject to a mortgage in favour of China Merchants Bank Co., Ltd. Chengdu Shuangnan Branch ( ).
In arriving at our valuation, we cannot attribute any commercial value to the buildings and structures other than those mentioned in Note 2 of the property without relevant title documents as at the date of valuation.

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APPENDIX I VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate Yes Building Ownership Certificate Yes

The opinion of the PRC legal adviser to the Company contains, inter alia, the following:
a. Chengdu Public Transport Compressed Natural Gas Co., Ltd. is in possession of a proper legal title to the property excluding the buildings and structures without relevant title documents and is entitled to transfer it with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The existing use of the property excluding the buildings and structures without relevant title documents is in compliance with the local planning regulations and has been approved by the relevant government authorities;
d. The property excluding the buildings and structures without relevant title documents can be freely disposed of in the open market subject to the consents of the mortgagee; and
e. Huayou Group is in the process of applying for the relevant building ownership documents which can be obtained upon the approval from relevant Government Departments and settlement of relevant land premium. However, Huayou Group has undertaken to be responsible for any loss arising from the unsuccessful application of title documents.
We have prepared our valuation based on the assumption that the property is not subject to mortgage or any other material encumbrances.
As advised by the Company, Chengdu Public Transport Compressed Natural Gas Co., Ltd. is effectively owned as to 71.3% by Huayou.

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APPENDIX I

VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

VALUATION CERTIFICATE

Market Value
Particulars of in existing state
Property Description and tenure occupancy as at 31 October 2009 RMB
1. A Gas Filling Station The property comprises a As advised by the 1,040,000 with ancillary buildings parcel of land with a site area Company, the property and structures in of approximately 1,251.90 was occupied by (Please see Sanyuan Village sq.m. (or about 13,475.45 Huayou Group as a Note 3 below) 1[st] Group, sq.ft.) upon which a gas gas filling station as Shiyang Village, filling station with ancillary at the date of High and New buildings and structures, valuation. Technology District, completed in about 2001, were Chengdu City, erected. Sichuan Province, The PRC The total gross floor area (“GFA”) of the property is approximately 387.22 sq.m. (or about 4,168.04 sq.ft.).
The land use rights of the property have been granted for a term expiring on 3 September 2042 for public utility use.

Notes: -

Pursuant to a State-owned Land Use Rights Certificate, Cheng Gao Guo Yong (2004) Di No. 9990 ( (2004) 9990 ), issued by Chengdu City People’s Government, the land use rights of the property with a site area of 1,251.90 sq.m. have been granted to Chengdu Public Transport Compressed Natural Gas Co., Ltd. for a term expiring on 3 September 2042 for public utility use.
Pursuant to a Building Ownership Certificate, Rong Fang Quan Zheng Cheng Fang Jian Zheng Zi Di No. 1149357 ( 1149357 ) issued by Chengdu City Real Estate Administration Bureau, the property with a GFA of 387.22 sq.m. is legally owned by Chengdu Public Transport Compressed Natural Gas Co., Ltd. for office and other uses.
In arriving at our valuation, we cannot attribute any commercial value to the buildings and structures (other than those mentioned in Note 2) of the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate Yes Building Ownership Certificate Yes

The opinion of the PRC legal adviser to the Company contains, inter alia, the following:
a. Chengdu Public Transport Compressed Natural Gas Co., Ltd. is in possession of a proper legal title to the property and is entitled to transfer the property with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;

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APPENDIX I VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

c. The property is not subject to mortgage or any other material encumbrances;
d. The existing use of the property excluding the buildings and structures without relevant title documents is in compliance with the local planning regulations and has been approved by the relevant government authorities; and
e. The property excluding the buildings and structures without relevant title documents can be freely disposed of in the open market.
As advised by the Company, Chengdu Public Transport Compressed Natural Gas Co., Ltd. is effectively owned as to 62.45% by Huayou.

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

VALUATION CERTIFICATE

Market Value
Particulars of in existing state
Property Description and tenure occupancy as at 31 October 2009 RMB
1. A Gas Filling Station The property comprises a As advised by the 5,000,000 with ancillary buildings parcel of land with a site area Company, the property and structures in of approximately 1,349.99 was occupied by (Please see Xilin Village 4[th] Group, sq.m. (or about 14,531.29 Huayou Group as a Note 3 below) Qinglong Village, sq.ft.) upon which a gas gas filling station as Chenghua District, filling station with ancillary at the date of Chengdu City, buildings and structures, valuation. Sichuan Province, completed in about 2006, were The PRC erected. As advised by the Company, the total gross floor area of the buildings and structures of the property without relevant title documents is approximately 404.8 sq.m. (or about 4,357.27 sq.ft.).

The land use rights of the property have been granted for a term expiring on 30 July 2040 for commercial use.

Notes: -

Pursuant to a State-owned Land Use Rights Certificate, Cheng Guo Yong (2001) Zi Di No. 1098 ( (2001) 1098 ), issued by Chengdu City People’s Government dated September 2001, the land use rights of the property with a site area of 1,349.99 sq.m. have been granted to Chengdu Public Transport Compressed Natural Gas Co., Ltd. for a term expiring on 30 July 2040 for commercial use.
As advised by the Company, the property is subject to a mortgage in favour of China Merchants Bank Co., Ltd. Chengdu Shuangnan Branch ( ).
In arriving at our valuation, we cannot attribute any commercial value to the buildings and structures of the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate Yes Building Ownership Certificate No

The opinion of the PRC legal adviser to the Company contains, inter alia, the following:
a. Chengdu Public Transport Compressed Natural Gas Co., Ltd. is in possession of a proper legal title to the property excluding the buildings and structures without relevant title documents and is entitled to transfer it with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;

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APPENDIX I VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

c. The existing use of the property excluding the buildings and structures without relevant title documents is in compliance with the local planning regulations and has been approved by the relevant government authorities;
d. The property excluding the buildings and structures without relevant title documents can be freely disposed of in the open market subject to the consents of the mortgagee; and
e. Huayou Group is in the process of applying for the relevant building ownership documents which can be obtained upon the approval from relevant Government Departments and settlement of relevant land premium. However, Huayou Group has undertaken to be responsible for any loss arising from the unsuccessful application of title documents.
We have prepared our valuation based on the assumption that the property is not subject to mortgage or any other material encumbrances.
As advised by the Company, Chengdu Public Transport Compressed Natural Gas Co., Ltd. is effectively owned as to 62.45% by Huayou.

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

VALUATION CERTIFICATE

Property Description and tenure

A Gas Filling Station The property comprises a with ancillary buildings parcel of land with a site area and structures in of approximately 3,333.31 No. 138 Shu Zhou sq.m. (or about 35,879.75 Nan Road, sq.ft.) upon which a gas Chongyang Town, filling station with ancillary Chongzhou City, buildings and structures, Chengdu City, completed in about 2008, were Sichuan Province, erected. The PRC The total gross floor area (“GFA”) of the property is approximately 407.76 sq.m. (or about 4,389.13 sq.ft.). Beside, as advised by the Company, the total GFA of the buildings and structures of the property without relevant title documents is approximately 636.78 sq.m. (or about 6,854.30 sq.ft.).

Market Value Particulars of in existing state occupancy as at 31 October 2009 RMB As advised by the 3,970,000 Company, the property was occupied by (Please see Huayou Group as a Note 3 below) gas filling station as at the date of valuation.

The land use rights of the property have been granted for a term expiring on 7 April 2047 for commercial use.

Notes: -

Pursuant to a State-owned Land Use Rights Certificate, Chong Guo Yong (2007) Di No. 12582 ( (2007) 12582 ), issued by Chongzhou City People’s Government ( ) dated 8 October 2007, the land use rights of the property with a site area of 3,333.31 sq.m. have been granted to Huayou for a term expiring on 7 April 2047 for commercial use.
Pursuant to a Building Ownership Certificate, Chong Fang Quan Zheng Jian Zheng Zi Di No. 0034902 ( 0034902 ), issued by Chongzhou City Real Estate Administration Bureau ( ), the property with a GFA of 407.76 sq.m. is legally owned by Huayou.
In arriving at our valuation, we cannot attribute any commercial value to the buildings and structures (other than those mentioned in Note 2) of the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate Yes Building Ownership Certificate Yes

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

The opinion of the PRC legal adviser to the Company contains, inter alia, the following:
a. Huayou is in possession of a proper legal title to the property excluding the buildings and structures without relevant title documents and is entitled to transfer it with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;
d. The existing use of the property excluding the buildings and structures without relevant title documents is in compliance with the local planning regulations and has been approved by the relevant government authorities;
e. The property excluding the buildings and structures without relevant title documents can be freely disposed of in the open market; and
f. Huayou Group is in the process of applying for the relevant building ownership documents which can be obtained upon the approval from relevant Government Departments and settlement of relevant land premium. However, Huayou Group has undertaken to be responsible for any loss arising from the unsuccessful application of title documents.

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

VALUATION CERTIFICATE

Market Value
Particulars of in existing state
Property Description and tenure occupancy as at 31 October 2009 RMB
1. A Gas Filling Station The property comprises a As advised by the 930,000 with ancillary buildings parcel of land with a site area Company, the property and structures in of approximately 2,811.77 was occupied by (Please see Dashan Village sq.m. (or about 30,265.89 Huayou Group as a Note 3 below) 4[th] Group, sq.ft.) upon which a gas gas filling station as Dashanpu Town, filling station with ancillary at the date of Daan District, buildings and structures, valuation. Zigong City, mainly completed in about Sichuan Province, 1995, were erected. The PRC The gross floor area (“GFA”) of the property is approximately 160.58 sq.m. (or about 1,728.48 sq.ft.). Besides, as advised by the Company, the GFA of the buildings and structures of the property without relevant title documents is approximately 124 sq.m. (or about 1,334.74 sq.ft.).

The land use rights of the property have been granted for a term expiring on 2 March 2041 for industrial use.

Notes: -

Pursuant to a State-owned Land Use Rights Certificate, Zi Guo Yong (2001) Zi Di No. 040132 ( (2001) 040132 ), issued by Zigong City People’s Government ( ), the land use rights of the property with a site area of 2,811.77 sq.m. have been granted to Huayou for a term expiring on 2 March 2041 for industrial use.
Pursuant to a Building Ownership Certificate, Zi Fang Quan Zheng Da An Zi Di No. 00028650 ( 00028650 ), issued by Zigong City Real Estate Administrative Bureau ( ), the property with a GFA of 160.58 sq.m. is legally owned by Huayou for non-residential use.
In arriving at our valuation, we cannot attribute any commercial value to the buildings and structures (other than those mentioned in Note 2) of the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate Yes Building Ownership Certificate Yes

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

The opinion of the PRC legal adviser to the Company contains, inter alia, the following:
a. Huayou is in possession of a proper legal title to the property excluding the buildings and structures without relevant title documents and is entitled to transfer it with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;
d. The existing use of the property excluding the buildings and structures without relevant title documents is in compliance with the local planning regulations and has been approved by the relevant government authorities;
e. The property excluding the buildings and structures without relevant title documents can be freely disposed of in the open market; and
f. Huayou Group is in the process of applying for the relevant building ownership documents which can be obtained upon the approval from relevant Government Departments and settlement of relevant land premium. However, Huayou Group has undertaken to be responsible for any loss arising from the unsuccessful application of title documents.

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APPENDIX I

VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

VALUATION CERTIFICATE

Description and tenure

Property

A Gas Filling Station The property comprises a with ancillary buildings parcel of land with a site area and structures in of approximately 3,605.01 No. 8 Guandu Village, sq.m. (or about 38,804.33 Jinyuan Town, sq.ft.) upon which a gas Dayi County, filling station with ancillary Chengdu City, buildings and structures, Sichuan Province, mainly completed in about The PRC 2001, were erected. The gross floor area (“GFA”) of the property is approximately 204.07 sq.m. (or about 2,196.61 sq.ft.). Besides, as advised by the Company, the GFA of the buildings and structures of the property without relevant title documents is approximately 585.2 sq.m. (or about 6,299.09 sq.ft.).

Market Value Particulars of in existing state occupancy as at 31 October 2009 RMB As advised by the 4,460,000 Company, the property was occupied by (Please see Huayou Group as a Note 3 below) gas filling station as at the date of valuation.

The land use rights of the property have been granted for a term expiring on 28 July 2044 for commercial use.

Notes: -

Pursuant to a State-owned Land Use Rights Certificate, Yi Guo Yong (2004) Di No. 38248 ( (2004) 38248 ), issued by Da Yi County People’s Government ( ), the land use rights of the property with a site area of 3,605.01 sq.m. have been granted to Dayi Huayou Energy Compressed Natural Gas Co., Ltd. ( ) for a term expiring on 28 July 2044 for commercial use.
Pursuant to a Building Ownership Certificate, Da Fang Quan Zheng Jian Zheng Zi Di No. 0017714 ( 0017714 ), issued by Dayi County Real Estate Administration Bureau ( ) dated 29 January 2002, the property with a GFA of 204.07 sq.m. is legally owned by Dayi Huayou Energy Compressed Natural Gas Co., Ltd. for factory use.
In arriving at our valuation, we cannot attribute any commercial value to the buildings and structures (other than those mentioned in Note 2) of the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate Yes Building Ownership Certificate Yes

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APPENDIX I VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

The opinion of the PRC legal adviser to the Company contains, inter alia, the following:
a. Dayi Huayou Energy Compressed Natural Gas Co., Ltd. is in possession of a proper legal title to the property excluding the buildings and structures without relevant title documents and is entitled to transfer it with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;
d. The existing use of the property excluding the buildings and structures without relevant title documents is in compliance with the local planning regulations and has been approved by the relevant government authorities;
e. The property excluding the buildings and structures without relevant title documents can be freely disposed of in the open market; and
f. Huayou Group is in the process of applying for the relevant building ownership documents which can be obtained upon the approval from relevant Government Departments and settlement of relevant land premium. However, Huayou Group has undertaken to be responsible for any loss arising from the unsuccessful application of title documents.
As advised by the Company, Dayi Huayou Energy Compressed Natural Gas Co., Ltd. is effectively owned as to 40% by Huayou.

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

VALUATION CERTIFICATE

Market Value
Particulars of in existing state
Property Description and tenure occupancy as at 31 October 2009 RMB
1. A Gas Filling Station The property comprises a As advised by the 2,600,000 with ancillary buildings parcel of land with a site area Company, the property and structures in of approximately 2,066.2 was occupied by (Please see Nei Bei Road North, sq.m. (or about 22,204.58 Huayou Group as a Note 2 below) Central District, sq.ft.) upon which a gas gas filling station as Neijiang City, filling station with ancillary at the date of Sichuan Province, buildings and structures, valuation. The PRC mainly completed in about 2007, were erected. As advised by the Company, the gross floor area (“GFA”) of the buildings and structures of the property without relevant title documents is approximately 968 sq.m. (or about 10,419.55 sq.ft.).

The land use rights of the property have been granted for a term expiring on 9 January 2045 for commercial use.

Notes: -

Pursuant to a State-owned Land Use Rights Certificate, Nei Shi Guo Yong (2007) Di No. 011066 ( (2007) 011066 ), issued by Neijiang City People’s Government ( ), the land use rights of the property with a site area of 2,066.2 sq.m. have been granted to Huayou for a term expiring on 9 January 2045 for commercial use.
In arriving at our valuation, we cannot attribute any commercial value to the buildings and structures of the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate Yes Building Ownership Certificate No

The opinion of the PRC legal adviser to the Company contains, inter alia, the following:
a. Huayou is in possession of a proper legal title to the property excluding the buildings and structures without relevant title documents and is entitled to transfer it with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. Huayou will carry out capital injection of Neijiang Huaqi Public Transport Compressed Natural Gas Co., Ltd. ( ) at a consideration of the land use rights of the land of the property. The transfer progress is under preparation as at the date of valuation;
c. All land premium and other costs of ancillary utility services have been settled in full;

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APPENDIX I VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

d. The property is not subject to mortgage or any other material encumbrances;
e. The existing use of the property excluding the buildings and structures without relevant title documents is in compliance with the local planning regulations and has been approved by the relevant government authorities;
f. The property excluding the buildings and structures without relevant title documents can be freely disposed of in the open market; and
g. Huayou Group is in the process of applying for the relevant ownership documents which can be obtained upon the approval from relevant Government Departments and settlement of relevant land premium. However, Huayou Group has undertaken to be responsible for any loss arising from the unsuccessful application of title document.

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

VALUATION CERTIFICATE

Market Value
Particulars of in existing state
Property Description and tenure occupancy as at 31 October 2009 RMB
1. A Gas Filling Station The property comprises a As advised by the 780,000 with ancillary buildings parcel of land with a site area Company, the property and structures in of approximately 4,160.30 was vacant with (Please see Lower Maanshan sq.m. (or about 44,781.47 various structures as Note 2 below) Transformer Station, sq.ft.) upon which a few at the date of Central District, structures, mainly completed valuation. Neijiang City, in about 2007, were erected. Sichuan Province, The PRC The land use rights of the property have been granted for a term expiring on 29 November 2020 for godown use.

Notes: -

Pursuant to a State-owned Land Use Rights Certificate, Nei Shi Guo Yong (2008) Di No. 007834 ( (2008) 007834 ), issued by Neijiang City People’s Government ( ), the land use rights of the property with a site area of 4,160.30 sq.m. have been granted to Huayou for a term expiring on 29 November 2020 for godown use.
In arriving at our valuation, we cannot attribute any commercial value to the structures of the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate Yes

The opinion of the PRC legal adviser to the Company contains, inter alia, the following:
a. Huayou is in possession of a proper legal title to the property and is entitled to transfer the property with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;
d. The existing use of the property is in compliance with the local planning regulations and has been approved by the relevant government authorities; and
e. The property can be freely disposed of in the open market.

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APPENDIX I

VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

VALUATION CERTIFICATE

Description and tenure

Property

A Gas Filling Station The property comprises a with ancillary buildings parcel of land with a site area and structures in of approximately 7,200 sq.m. Zhan Qian Dong Road, (or about 77,500.8 sq.ft.) upon Xin Cheng Bei which a gas filling station Street North, with ancillary buildings and Shulinzhao Town, structures, completed in Ordos City, between 2002 and 2005, were Inner Mongolia erected. Autonomous Region, The PRC The total gross floor area (“GFA”) of the property is approximately 300.8 sq.m. (or about 3,237.81 sq.ft.). Beside, as advised by the Company, the total GFA of the buildings and structures of the property without relevant title documents is approximately 543 sq.m. (or about 5,844.85 sq.ft.).

Market Value Particulars of in existing state occupancy as at 31 October 2009 RMB As advised by the 2,740,000 Company, the property was occupied by (Please see Huayou Group as a Note 2 below) gas filling station as at the date of valuation.

The land use rights of the property have been granted for a term expiring on 1 April 2052 for composite use.

Notes: -

Pursuant to a State-owned Land Use Rights Certificate, Da Guo Yong (2005) Di No. 5768 ( (2005) 5768 ), issued by Dalate Banner People’s Government ( ) dated 23 December 2005, the land use rights of the property with a site area of 7,200 sq.m. have been granted to Ordos City Huaqi Dachang Gas Co., Ltd. ( ) for a term expiring on 1 April 2052 for composite use.
Pursuant to a Building Ownership Certificate Fang Quan Zheng (2006) Zi Di No. 17826 ( (2006) 17826 ) issued by Dalate Banner Real Estate Administration Bureau ( ) dated 18 April 2006, the property with a GFA of 300.8 sq.m. is legally owned by Ordos City Huaqi Dachang Gas Co., Ltd. for operation.
In arriving at our valuation, we cannot attribute any commercial value to the buildings and structures (other than those mentioned in Note 2) of the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate Yes Building Ownership Certificate Yes

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

The opinion of the PRC legal adviser to the Company contains, inter alia, the following:
a. Ordos City Huaqi Dachang Gas Co., Ltd. is in possession of a proper legal title to the property and is entitled to transfer the property with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;
d. The existing use of the property excluding the buildings and structures without relevant title documents is in compliance with the local planning regulations and has been approved by the relevant government authorities;
e. The property excluding the buildings and structures without relevant title documents can be freely disposed of in the open market; and
f. Huayou Group is in the process of applying for the relevant building ownership documents which can be obtained upon the approval from relevant Government Departments and settlement relevant of land premium. However, Huayou Group has undertaken to be responsible for any loss arising from the unsuccessful application of title documents.
As advised by the Company, Ordos City Huaqi Dachang Gas Co., Ltd. is effectively owned as to 60% by Huayou.

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

VALUATION CERTIFICATE

Market Value Particulars of in existing state Property Description and tenure occupancy as at 31 October 2009 RMB 14. Various Gas Filling The property comprises As advised by the No Commercial Value Stations with ancillary various gas filling stations Company, the property buildings and with ancillary buildings and was occupied by structures in structures. Huayou Group as Baotou City, various gas filling Inner Mongolia As advised by the Company, stations as at the date Autonomous Region, the total gross floor area of of valuation. The PRC the buildings and structures of the property without relevant title documents is approximately 11,772 sq.m. (or about 126,713.81 sq.ft.).

Notes: -

In arriving at our valuation, we cannot attribute any commercial value to the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate No Building Ownership Certificate No

The opinion of the PRC legal adviser to Company states, inter alia, that Huayou Group is in the process of applying for the relevant title documents which can be obtained upon the approval from relevant Government Departments and settlement of relevant land premium. However, Huayou Group has undertaken to be responsible for any loss arising from the unsuccessful application of title documents.
As advised by the Company, the property is held by Baitou Huaqi New Energy Development Co., Ltd. ( ) which is effectively owned as to 80% by Huayou.

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

VALUATION CERTIFICATE

Description and tenure

Property

A Gas Filling Station The property comprises a with ancillary buildings parcel of land with a site area and structures in of approximately 20,000 sq.m. Tian Village, (or about 215,280 sq.ft.) upon Yongle Town, which a gas filling station Jingyang County, with ancillary buildings and Shaanxi Province, structures, completed in The PRC between 2005 and 2008, were erected. As advised by the Company, the total gross floor area of the buildings and structures of the property without relevant title documents is approximately 1,646.8 sq.m. (or about 17,726.16 sq.ft.).

Market Value Particulars of in existing state occupancy as at 31 October 2009 RMB As advised by the No Commercial Value Company, the property was occupied by Huayou Group as a gas filling station as at the date of valuation.

Notes: -

Pursuant to a Gas Station Project Contract entered into between Shanxi Province Jingyang County People’s Government ( ) and Jingyang Huaqi Anran Compressed Natural Gas Co., Ltd. ( ) dated 7 April 2005, the latter has been approved to build a gas filling station with ancillary buildings and structures in the subject land with a site area of 20,000 sq.m.
In arriving at our valuation, we cannot attribute any commercial value to the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate No Building Ownership Certificate No

The opinion of the PRC legal adviser to Company states, inter alia, that Huayou Group is in the process of applying for the relevant title documents which can be obtained upon the approval from relevant Government Departments and settlement of relevant land premium. However, Huayou Group has undertaken to be responsible for any loss arising from the unsuccessful application of title documents.
As advised by the Company, the property is held by Jingyang Huaqi Anran Compressed Natural Gas Co., Ltd. which is effectively owned as to 60% by Huayou.

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

VALUATION CERTIFICATE

Property

Description and tenure

Market Value Particulars of in existing state occupancy as at 31 October 2009 RMB

Various Gas Filling The property comprises Stations with ancillary various gas filling stations buildings and with ancillary buildings and structures in structures. Taian City, Shandong Province, As advised by the Company, The PRC the total gross floor area of the buildings and structures of the property without relevant title documents is approximately 788.52 sq.m. (or about 8,487.63 sq.ft.).

As advised by the No Commercial Value Company, the property was occupied by Huayou Group as gas filling stations as at the date of valuation.

Notes: -

In arriving at our valuation, we cannot attribute any commercial value to the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate No Building Ownership Certificate No

The opinion of the PRC legal adviser to Company states, inter alia, that Huayou Group is in the process of applying for the relevant title documents which can be obtained upon the approval from relevant Government Departments and settlement of relevant land premium. However, Huayou Group has undertaken to be responsible for any loss arising from the unsuccessful application of title documents.
As advised by the Company, the property is held by Taian Zhongyou Huaqi Natural Gas Co., Ltd. ( ) which is effectively owned as to 51% by Huayou.

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

VALUATION CERTIFICATE

Market Value
Particulars of in existing state
Property Description and tenure occupancy as at 31 October 2009 RMB
1. A Gas Filling Station The property comprises a gas As advised by the No Commercial Value with ancillary buildings filling station with ancillary Company, the property and structures in buildings and structures. was occupied by Zibo City, Huayou Group as gas Shandong Province, As advised by the Company, filling stations as at The PRC the total gross floor area of the date of valuation. the buildings and structures of the property without relevant title documents is approximately 208 sq.m. (or about 2,238.91 sq.ft.).

Notes: -

In arriving at our valuation, we cannot attribute any commercial value to the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate No Building Ownership Certificate No

The opinion of the PRC legal adviser to Company states, inter alia, that Huayou Group is in the process of applying for the relevant title documents which can be obtained upon the approval from relevant Government Departments and settlement of relevant land premium. However, Huayou Group has undertaken to be responsible for any loss arising from the unsuccessful application of title documents.
As advised by the Company, the property is held by Zibo Huayou Natural Gas Co., Ltd. ( ) which is effectively owned as to 90% by Huayou.

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

VALUATION CERTIFICATE

Market Value
Particulars of in existing state
Property Description and tenure occupancy as at 31 October 2009 RMB
1. A Gas Filling Station The property comprises a gas As advised by the No Commercial Value with ancillary buildings filling station with ancillary Company, the property and structures in buildings and structures. was occupied by Shi Lian Road, Huayou Group as a Yuhua District, As advised by the Company, gas filling station as Shijiazhuang City, the total gross floor area of at the date of Hebei Province, the buildings and structures of valuation. The PRC the property without relevant title documents is approximately 852 sq.m. (or about 9,170.93 sq.ft.).

Notes: -

In arriving at our valuation, we cannot attribute any commercial value to the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate No Building Ownership Certificate No

The opinion of the PRC legal adviser to Company states, inter alia, that Huayou Group is in the process of applying for the relevant title documents which can be obtained upon the approval from relevant Government Departments and settlement of relevant land premium. However, Huayou Group has undertaken to be responsible for any loss arising from the unsuccessful application of title documents.
As advised by the Company, the property is held by Hebei Huayou Natural Gas Co., Ltd. ( ) which is effectively owned as to 51% by Huayou.

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

VALUATION CERTIFICATE

Group II – Property held by Huayou Group for future development in the PRC

Property Description and tenure
1. A parcel of land in The property comprises a Xinqiao Industrial parcel of land numbered as Concentration Zone, GC2009-17 with a site area of Guangan District, approximately 137,203.95 Guangan City, sq.m. (or about 1,476,863.32 Sichuan Province, sq.ft.). The PRC The total proposed gross floor area (“GFA”) of the property is approximately 6,800 sq.m. (or about 73,195.20 sq.ft.) upon completion. It is scheduled to be completed in about June 2011. The land use rights of the property have been granted for a term expiring on 21 October 2059 for industrial use.

Market Value Particulars of in existing state occupancy as at 31 October 2009 RMB As advised by the 16,500,000 Company, the property was vacant as at the date of valuation.

Notes: –

Pursuant to a State-owned Land Use Rights Certificate, Xin Qiao Guo Yong (2009) Di No. 01543 ( (2009) 01543 ) issued by Guangan City Guangan District People’s Government, ( ) dated 29 October 2009 the land use rights of the property with a site area of 137,203.95 sq.m. have been granted to Huayou Natural Gas Guangan Co., Ltd. ( ) for a term expiring on 21 October 2059 for industrial use.
Pursuant to a Planning Permit for Construction Site ( ) Guang Shi Gui Jian No. 511601200900034 ( 511601200900034) issued by Guangan City Planning and Construction Bureau ( ) dated 9 November 2009, the construction work with a site area of 137,203.95 sq.m. is in compliance with the requirement of urban and rural planning.
Pursuant to a Planning Permit for Construction Work ( ) Guang Shi Gui Jian No. 511601200900050 ( 511601200900050) issued by Guangan City Planning and Construction Bureau dated 9 November 2009, a proposed natural gas operation development with a GFA of 6,800 sq.m. is in compliance with the requirement of urban and rural planning.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate Yes Planning Permit for Construction Site Yes Planning Permit for Construction Work Yes

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APPENDIX I VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

The opinion of the PRC legal adviser to the Company contains, inter alia, the following:
a. Huayou Natural Gas Guangan Co., Ltd. is in possession of a proper legal title to the property to transfer it with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The planning of the property is in compliance with the local planning regulations and has been approved by the relevant government authorities;
d. The property may be freely disposed of in the open market subject to the consents of the mortgagee; and
As advised by the Company, Huayou Natural Gas Guangan Co., Ltd. is a wholly-owned subsidiary of Huayou.

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VALUATION REPORT ON THE PROPERTY INTERESTS OF HUAYOU GROUP

APPENDIX I

VALUATION CERTIFICATE

Group III – Property held by Huayou Group for investment in the PRC

						Market Value
					Particulars of	in existing state
	Property			Description and tenure	occupancy	as at 31 October 2009
						RMB
20.	A	composite building in		The property comprises a	As advised by the	6,100,000
	No.		81 Bei Street,	7-storey composite building	Company, portion of
	Liucheng Town,			which was completed in about	the property is under a
	Chengdu City,			1997.	monthly tenancy at an
	Sichuan Province,				annual rent of
	The PRC			The total gross floor area	RMB68,000.
				(“GFA”) of the property is approximately 2,784.76 sq.m. (or about 29,975.16 sq.ft.).	The remaining portion of the property is
					vacant.
				The land use rights of the
				property have been granted for
				a term expiring on 5 March
				2051 for residential use.

Notes: -

Pursuant to a State-owned Land Use Rights Certificate, Wen Guo Yong (2002) Zi Di No. 3399 ( (2002) 3399 ), issued by Wen Jiang County People’s Government ( ), the land use rights of the property with a site area of 371.8 sq.m. have been granted to Huayou for a term expiring on 5 March 2051 for residential use.
Pursuant to a Building Ownership Certificate, Wen Fang Quan Zheng Jian Quan Zi Di No. 0016613 ( 0016613 ), issued by Wen Jiang County People’s Government ( ), the property with a GFA of 2,784.76 sq.m. is legally owned by Huayou for residential use.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate Yes Building Ownership Certificate Yes

The opinion of the PRC legal adviser to the Company contains, inter alia, the following:
a. Huayou is in possession of a proper legal title to the property and is entitled to transfer the property with their residual terms of land use rights at no extra land premium or other onerous payment payable to the government;
b. All land premium and other costs of ancillary utility services have been settled in full;
c. The property is not subject to mortgage or any other material encumbrances;
d. The existing use of the property is in compliance with the local planning regulations and has been approved by the relevant government authorities; and
e. The property can be freely disposed of in the open market.

– 84 –

APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

The following is the English translation of the Assets Valuation Report prepared by China United Assets Appraisal Co., Ltd., an independent valuer, in connection with the valuation of Huayou as at 31 August 2009 prepared for the purpose of inclusion in this circular.

PROPOSED ACQUISITION OF EQUITY INTEREST IN CHINA NATURAL GAS CO., LTD. BY CNPC (HONG KONG) LIMITED ASSETS VALUTAION REPORT ZHONG LIAN PING BAO ZI [2009] NO. 594

To: CNPC (Hong Kong) Limited

China United Assets Appraisal Co., Ltd. is engaged by the Company to conduct a valuation on assets and liabilities of China National Gas Co., Ltd. in accordance with the laws, rules and regulations and valuation principles on assets valuation of China and the generally accepted assets valuation methods under the principles of being independent, objective and scientific and the relevant economic principles, including the principle of changes in property rights and the principle of substitution. The valuation team implemented on-site inspection, market surveys and evidence confirmation to the assets and liabilities under valuation in accordance with the necessary assets valuation procedures to reflect the market value of the equity capital (net assets) of China National Gas Co., Ltd. as at 31 August 2009. The assets valuation and the valuation results are detailed as follows:

I. PRINCIPAL, ENTITY TO BE VALUED, ASSETS OWNER AND OTHER REPORT USER

(I) Description of Principal and Assets Owner

The principal of this valuation is CNPC (Hong Kong) Limited (“CNPC (Hong Kong)”).

(I) Principal

The principal of this valuation is CNPC (Hong Kong) Limited.

Company Name: English Name: CNPC (Hong Kong) Limited Registration Number: 15322942-000-08-08-5 Address: Room 3907 – 3910, 39th Floor, 118 Connaught Road West, Hong Kong Nature of Business: Investment holding

CNPC (Hong Kong) Limited is a company incorporated in Bermuda with limited liability. Its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) (stock code: HK00135). The ultimate holding company of CNPC (Hong Kong) Limited is PetroChina Company Limited (the “PetroChina”), a company established in the People’s Republic of China (the “China”). Its shares are listed in

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

Hong Kong, the mainland China and the US. The immediate holding company of CNPC (Hong Kong) Limited is Sun World Limited which is a company incorporated in British Virgin Islands. The principal office and the registered office of CNPC (Hong Kong) Limited are Room 3907 – 3910, 39th Floor, 118 Connaught Road West, Hong Kong and Clarendon House, Church Street, Hamilton HM11, Bermuda, respectively.

CNPC (Hong Kong) Limited is an investment holding company. The principal activities of its subsidiaries, associates and jointly controlled entities are the exploration and production of crude oil and natural gas in China, the Republic of Kazakhstan, the Sultanate of Oman, Peru, the Thailand, the Azerbaijan Republic and Indonesia. The oil operation in China is conducted through production sharing arrangements between CNPC (Hong Kong) Limited and PetroChina (its shares are listed on the Stock Exchange and Shanghai Stock Exchange), a subsidiary of China National Petroleum Corporation (“CNPC”), whereby CNPC (Hong Kong) Limited is entitled to a fixed percentage of assets, liabilities, incomes and expenses in accordance with oilfield production sharing contracts entered into with PetroChina.

Apart from the oil exploration and production business in Thailand and Indonesia which are conducted by CNPC (Hong Kong) Limited with independent third parties, the remaining overseas businesses are all conducted jointly with China National Oil and Gas Exploration and Development Corporation (“CNODC”) which is responsible for the overall operation and supervision.

As at 31 December 2008, the percentage of shareholding of the Company’s immediate controlling shareholder, Sun World Limited, was 56.8%, with remaining shares held by the public. The ultimate holding company is PetroChina.

On 27 August 2008, PetroChina announced in a press announcement published in Hong Kong that it would work together with CNPC (Hong Kong) to explore the possibility of co-operating in the end-consumer market of natural gas in cities in China, including gas and natural gas for motor vehicles. The co-operation would capitalise on the natural gas resources and supplies of PetroChina, providing CNPC (Hong Kong) with a promising stream of future growth in the end-consumer market of natural gas.

Accordingly, through exercises including merge, acquisition and capital injection, the Company has been able to expand in the natural gas application sector by holding 97.26%, 51.01% and 50.98% of equity interests in Xinjiang Xinjie Co., Ltd., China Natural Gas Co., Ltd. and CNPC Shennan Oil Technology Development Co., Ltd. respectively.

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

(II) Assets Owner

The assets owner of this valuation is CNPC Shenzhen Petroleum Industrial Co., Ltd..

Company Name: CNPC Shenzhen Petroleum Industrial Co., Ltd. Company Address: 22nd Floor, Block B, Jintong Building, 10 Aiguo Road, Luohu District, Shenzhen City Legal Representative: Tao Yuchun Registered Capital: RMB452.24 million Company Type: Limited liabilities Business License 440301102904247 Registration No.: Date of Establishment: January 1998

CNPC Shenzhen Petroleum Industrial Co., Ltd. (hereinafter referred to as the “Shenzhen Petroleum Industrial”), a wholly-owned subsidiary of CNPC, was established in January 1989 with the approval of Shenzhen People’s Government.

After years of development, Shenzhen Petroleum Industrial has primarily formed its business structure, with natural gas exploration and development, piped city-gas and CNG vehicle project development, and petroleum and chemical products distribution as its core businesses, and gas pipe material production, pipe network construction and international trading of oil and natural gas supplies and equipment as its supplementary businesses, providing a solid foundation for the sustainable, healthy and rapid development of which.

Eight departments and offices (General Manager Office (Party Member Office), Personnel Department, Planning Department, Treasury Department, Capital Operation Department, Quality, Safety and Environment Department, Audit Control Department and Gas Department) and two direct organisations (Oil Product Sales Department and International Trading Department) have been set up in the headquarter of Shenzhen Petroleum Industrial. It has 11 secondary companies and 32 tertiary companies, including Sichuan Huayou Natural Gas Joint Stock Company Limited ( ), CNPC Shennan Oil Technology Development Co., Ltd., Shenzhen Huayou Enterprise Development Limited ( ), Shenzhen CNPC Building Hotel Ltd. ( ) and etc. The number of staff of the headquarter and subordinate companies of Shenzhen Petroleum Industrial amounts to approximately 2,200 in total.

– 87 –

APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

(III) Entity to be Valued

1. Company Name, Type and Structure

Company Name: China Natural Gas Co., Ltd. (hereinafter referred to as “Huayou”) Company Address: No. 1-1-2 Longbo Road, Longquan Town, Longquanyi District, Chengdu City Legal Representative: Lu Sikan Company Type: Joint stock company Registered Capital: RMB347 million Business License 510000000091100 Registration No.: Business Scope: Oil and natural gas exploration (excluding pre-approval projects; post-approvals projects can be operated with permits or approval documents); gas production and sales, with the operation period limited to that stated in the permit

2. History and Development

With the approval by a document named Ti Gai Sheng [1994] No. 23 of the State Commission for Restructuring the Economic System, Huayou was duly established in August 1994. The total share capital comprised 53 million shares with a registered capital of RMB53 million. The then promoters of Huayou (representing all shareholders) comprised 11 entities in total, all of them paid for their respective shareholdings in cash. The shareholding of each of the shareholders was:

Table 3-1 Shareholding Structure 1

==> picture [376 x 199] intentionally omitted <==

----- Start of picture text -----

|||||||
|---|---|---|---|---|---|
|Shares|Percentage|of|
|Name|of|Promoter|Subscribed|Shareholding|Note|
|(’0,000)|
|1,200|22.64%|State-owned|
|(Sichuan|Huayou|enterprise|affiliated|
|Enterprise|to|CNPC|
|Development|
|Corporation)|
|1,000|18.86%|State-owned|
|(Huayou|Industrial|enterprise|affiliated|
|Development|Co.)|to|CNPC|
|500|9.43%|State-owned|
|(Xinjiang|Huayou|enterprise|affiliated|
|Enterprise|Group)|to|CNPC|

----- End of picture text -----

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ASSET VALUATION REPORT OF HUAYOU GROUP

APPENDIX II

==> picture [376 x 482] intentionally omitted <==

----- Start of picture text -----

|||||||
|---|---|---|---|---|---|
|Shares|Percentage|of|
|Name|of|Promoter|Subscribed|Shareholding|Note|
|(’0,000)|
|(Sichuan|400|7.54%|State-owned|
|Petroleum|enterprise|affiliated|
|Administration)|to|CNPC|
|400|7.54%|State-owned|
|(Changqing|Oil|enterprise|affiliated|
|Exploration|Bureau)|to|CNPC|
|(Huabei|300|5.66%|State-owned|
|Petroleum|enterprise|affiliated|
|Administration)|to|CNPC|
|300|5.66%|State-owned|
|(China|National|Oil|enterprise|affiliated|
|and|Natural|Gas|Sales|to|CNPC|
|Company)|
|300|5.66%|State-owned|
|(Tarim|Oil|Exploration|enterprise|affiliated|
|and|Exploitation|to|CNPC|
|Headquarters)|
|300|5.66%|State-owned|
|(Tarim|Oil|Economy|enterprise|affiliated|
|Development|to|CNPC|
|Corporation)|
|300|5.66%|Legal|person|
|(China|Everbright|shareholder|from|
|International|Trust|and|the|public|
|Investment|
|Corporation)|
|300|5.66%|Legal|person|
|(Zhong|Chuan|shareholder|from|
|International|the|public|
|Cooperation|Joint|
|Stock|Company|
|Limited)|

----- End of picture text -----

Upon the establishment, the then shareholders of Huayou were all legal person corporations, which were divided into two main categories: 9 large-medium sized oil enterprises under CNPC ( ), with a total shareholding of 47 million shares representing 88.68% of the total share capital; 2 legal person shareholders from the public, with a total shareholding of 6 million shares representing 11.32% of the total share capital.

In the second half of 1997, under the initiation of (Sichuan Petroleum Administration) (a shareholder of Huayou), (Chuan Xinan Huayou Group Company) (a subordinate enterprise of (Sichuan Petroleum Administration)) which co-operated with Huayou in establishing gas stations

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

and drilling natural gas wells proposed to subscribe for new shares in Huayou and to pay for its subscription with the assets formed under their cooperation, which was valued at RMB19.5 million.

Huayou subsequently convened a general meeting in which the placing of 19.5 million shares to (Chuan Xinan Huayou Group Company), the collectively-owned enterprise affiliated to (Sichuan Petroleum Administration) (a shareholder of Huayou) was approved. Huayou then filed an application to the State Commission for Restructuring the Economic System, the examination and approval authority for its establishment, in respect of the said capital expansion through placing according to provisions of the “Company Law”. In December 1997, the State Commission for Restructuring the Economic System approved such application with a document named Ti Gai Sheng [1997] No. 189. Upon the capital expansion, the number of shareholders of Huayou increased to 12 and the total share capital increased to 72.5 million shares with a registered capital of RMB72.5 million. The additional collective-owned enterprise shareholder to Huayou had a shareholding of 26.89%, while the shareholdings of other oil enterprise shareholders and other legal person shareholders from the public changed to 64.84% and 8.27% respectively.

The State Commission for Restructuring the Economic System examined and approved the application of the capital expansion of Huayou with strict compliance to relevant provisions of the “Company Law”. The official reply of the State Commission for Restructuring the Economic System stated 3 points: 1. the capital expansion was approved; 2. the amendment of registration at industrial and commercial administration authorities should be applied for with the approval document; and 3. proper operation according to the “Company Law” should be continued after the examination and approval. In the examination and approval procedures, the application document of the capital expansion of Huayou was reported to the State Commission for Restructuring the Economic System by , the administration organisation for the industry. The State Commission for Restructuring the Economic System replied Huayou directly, while the reply document was simultaneously sent to various authorities of the State, including National State-owned Assets Management Bureau, the State Development Planning Commission, the State Economic and Trade Commission, the Securities Committee of the State Council and the State Land Bureau. After receiving the reply, Huayou immediately applied for an amendment of registration with the State Administration for Industry and Commerce in compliance with requirements of the approval document.

From April 2000 to August 2003, as CNPC ( ) undertook an internal restructuring, Huayou recovered loans to shareholders and a shareholder (CEITIC ( )) was revoked by the State, 31.35 million shares out of 72.5 million shares of Huayou were assigned within the CNPC, representing 43.24% of total shares of Huayou; 23.95 million shares were transferred within the CNPC, representing 33.03% of total shares of Huayou; other legal person shareholders from the public received shares and held 9 million shares of Huayou, representing 12.41% of the total shares of Huayou. Correspondingly, the number of shareholders of Huayou reduced from 12 to 8; (Sichuan Huayou Enterprise Development Corporation),

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

(Huayou Industrial Development Co.), (Xinjiang Huayou Enterprise Group), (Changqing Oil Exploration Bureau), (China National Oil and Natural Gas Sales Company) and (Huabei Petroleum Administration) (all the founding shareholders of Huayou and under the CNPC and (Chuan Xinan Huayou Group Company) (which injected capital through placing) withdrew; (CNPC Shennan Oil Technology Development Company) and (China Huayou Group Corporation), which were State-owned enterprises under the CNPC became two major shareholders holding a total of 42 million shares of Huayou, representing 57.93% of the total shares of Huayou. In addition, legal person shareholders, namely (Zhong Chuan International Joint Stock Company Limited) and (China Everbright International Trust and Investment Corporation) withdrew completely, while new legal person shareholders from the public, namely (Jiangyin City Hengchanglong Company Limited), (Chengdu Longquan Huake Investment Company) and (Hangzhou Xihu International Golf Company) became shareholders, holding 12.41% of shares of Huayou in aggregate.

Following the above changes of shareholding, shareholders and total shares of Huayou experienced no change until March 2004. The registered capital of Huayou approved after change of registration by the State Administration for Industry and Commerce was RMB72.5 million with a total share capital of 72.5 million shares. Detailed shareholdings were as follows:

Table 3-2 Shareholding Structure 2

Name of Promoter (CNPC Shennan Oil Technology Development Company) (China Huayou Group Company) (Sichuan Petroleum Administration) (Jiangyin City Hengchanglong Company Limited) (Chengdu Longquan Huake Investment Company) (Tarim Oil Exploration and Exploitation Headquarters) (Tarim Oil Economy Development Corporation) (Hangzhou Xihu International Golf Company) Total	Shares Subscribed (’0,000) 2,395 1,805 1,730 500 300 210 210 100 7,250	Percentage of Shareholding 33.03% 24.90% 23.86% 6.90% 4.14% 2.90% 2.90% 1.38%
		100.00%

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

In 2004, Huayou commenced its second capital expansion. In March 2004, Huayou convened a general meeting, in which the resolution of placing 27.5 million new shares at an issue price of RMB1.50 each was passed. Afterwards, the subscription monies for the new share placing were received and Huayou immediately applied for an industrial and commercial registration for change of registered capital according to laws. Due to the change in the State-owned equity interests in Huayou as a result of the issue of new shares, CNPC asked for instructions in respect of the capital expansion of Huayou from the State-owned Assets Supervision and Administration Commission of the State Council (the “SASAC”) with a document named Zhong You Zi Zi [2004] No. 312.

On 9 December 2004, the SASAC approved the proposed capital expansion and the issue of new shares in Huayou as reported by CNPC through its approval document named Guo Zi Chan Quan [2004] No. 1137. Accordingly, the registered share capital of Huayou increased to RMB100 million and the total share capital also increased to 100 million shares. All shareholders and their respective detailed shareholdings were as follows:

Table 3-3 Shareholding Structure 3

Name of Promoter (CNPC Shennan Oil Technology Development Company) (China Huayou Group Company) (Sichuan Petroleum Administration) (Shenzhen CNPC Investment Limited) (Shandong Tai’an Taishan Gas Group Limited) (Zhejiang Jindi Enterprise Group Company) (Jiangyin City Hengchanglong Company Limited) (Tarim Oil Exploration and Exploitation Headquarters) (Tarim Oil Economy Development Corporation) (Hangzhou Xihu International Golf Company) Total	Shares Subscribed (’0,000) 2,395 1,805 1,730 900 900 900 850 210 210 100 10,000	Percentage of Shareholding 23.95% 18.05% 17.30% 9.00% 9.00% 9.00% 8.50% 2.10% 2.10% 1.00%
		100.00%

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

After the share capital expansion of Huayou, due to the need for internal consolidation of CNPC, all the shares held by four shareholders, namely (CNPC Shennan Oil Technology Development Co., Ltd.), (Sichuan Petroleum Administration), (Xinjiang Tarim Oil Exploration and Exploitation Headquarters) and (Xinjiang Tarim Oil Economy Development Corporation), were transferred to (CNPC Shenzhen Petroleum Industrial Co., Ltd.) in accordance with the spirit of the document named Zhong You Zi Zi [2005] No. 282 in November 2005. Meanwhile, CNPC also reported the same request to the SASAC. On 21 June 2006, the SASAC approved the transfer of State-owned shares in Huayou as reported by CNPC through its approval document named Guo Zi Chan Quan [2006] No. 690. After the transfer, all shareholders of Huayou and their respective detailed shareholdings were as follows:

Table 3-4 Shareholding Structure 4

Name of Promoter (CNPC Shenzhen Petroleum Industrial Co., Ltd.) (China Huayou Group Company) (Shenzhen CNPC Investment Limited) (Shandong Tai’an Taishan Gas Group Limited) (Zhejiang Jindi Enterprise Group Company) (Jiangyin City Hengchanglong Company Limited) (Hangzhou Xihu International Golf Company) Total	Shares Subscribed (’0,000) 4,545 1,805 900 900 900 850 100 10,000	Percentage of Shareholding 45.45% 18.05% 9.00% 9.00% 9.00% 8.50% 1.00%
		100.00%

Huayou implemented its third share capital expansion in 2006. 70 million new shares were issued to all shareholders of Huayou at a price of RMB1.60 per share. The largest shareholder of Huayou, (CNPC Shenzhen Petroleum Industrial Co., Ltd.), subscribed for 19.75 million shares among the issued new shares in accordance with the spirit of the document named Zhong You Zi Zi [2006] No. 272. After the further issue, Huayou completed the industrial and commercial registration

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ASSET VALUATION REPORT OF HUAYOU GROUP

APPENDIX II

for change of registered capital in April 2007 whereby the registered capital was RMB170 million with a total share capital of 170 million shares. Accordingly, shareholders and their respective detailed shareholdings were as follows:

Table 3-5 Shareholding Structure 5

Name of Promoter (CNPC Shenzhen Petroleum Industrial Co., Ltd.) (China Huayou Group Company) (Shenzhen CNPC Investment Limited) (Shandong Tai’an Taishan Gas Group Limited) (Zhejiang Jindi Enterprise Group Company) (Jiangyin City Hengchanglong Company Limited) (Hangzhou Xihu International Golf Company) Total	Shares Subscribed (’0,000) 6,520 1,805 900 900 5,925 850 100 17,000	Percentage of Shareholding 38.35% 10.62% 5.29% 5.29% 34.85% 5.00% 0.59%
		100.00%

From the above share capital expansion to August 2008, there were two share transfers between shareholders of Huayou and the industrial and commercial registration for changes concerned was completed:

Firstly, 9 million shares in Huayou held by (Shenzhen CNPC Investment Limited) were all transferred to (CNPC Shenzhen Petroleum Industrial Co., Ltd.).

Secondly, 9 million shares in Huayou held by (Shandong Tai’an Taishan Gas Group Limited) were all transferred to (Zhejiang Jindi Enterprise Group Company).

On 14 March 2008, CNPC implemented the “Approval and Reply of the Share Transfer of China Natural Gas Co., Ltd.” (Zhong You Zi [2008] No. 136) and agreed to transfer 10.62% shareholding in Huayou held by (China Huayou Group) to (CNPC Shenzhen Petroleum Industrial Co., Ltd.) at no consideration. The date of transfer was 31 December 2007 and the transfer was made at nominal value.

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ASSET VALUATION REPORT OF HUAYOU GROUP

APPENDIX II

In accordance with the “Approval and Reply of the Acquisition of China Natural Gas Co., Ltd. by CNPC (Hong Kong) Limited through a Share Capital Expansion” issued by the Department of Commerce of Sichuan Province and the “Approval and Reply of Share Capital Expansion of China Natural Gas Co., Ltd. and CNPC Shennan Oil Technology Development Co., Ltd.” issued by China National Petroleum Corporation, Huayou implemented the fourth share capital expansion in 2009.

As at the valuation date of 31 August 2009, the registered share capital was RMB347 million with the shareholdings as follows:

Table 3-6 Shareholding Structure 6

Names of Shareholder (CNPC (Hong Kong) Limited) (CNPC Shenzhen Petroleum Industrial Co., Ltd.) (Hangzhou Jindi Enterprise Group Company) (Jiangyin City Hengchanglong Real Estates Co. Ltd.) (Hangzhou Xihu International Golf Club Co. Ltd.) Total	Contribution (RMB’0,000) 17,700.00 9,225.00 6,825.00 850.00 100.00 34,700.00	Percentage of Shareholding 51.01% 26.58% 19.67% 2.45% 0.29%
		100.00%

3. Production Status of the Company

Huayou is mainly engaged in the development of shallow seam natural gas and the operation of gas stations. The main development area of shallow seam natural gas includes (Data district) and (Songhua Baima District), producing natural gas. After segregation and measurement, natural gas produced in (Data district) will go to the long-haul transportation pipelines D219 constructed by Huayou. All the gas will then transported to (Hongmiao) gas distribution station for the use of Yibin City. Meanwhile, natural gas produced in (Songhua Baima District) will go to affiliated gas collection stations affiliated to (the northern western part of Sichuan Province). Currently, Huayou operates three 24-hours self-owned gas stations with an annual gas sales volume of 16 million cubic meters ( ).

Clients of shallow seam natural gas of Huayou include, among others, (Shu’nan Gas Mine) of , whereas clients of gas stations include , and .

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ASSET VALUATION REPORT OF HUAYOU GROUP

APPENDIX II

4. Main Assets of the Company

Buildings and structures of Huayou included in this valuation are all built during the period starting from the 90’s in the 20th century. They are located in the urban areas of Chengdu, Longquanyi District and Zigong City, with a total gross floor area of 12,110.16 square meters. The construction of these buildings and structures can be divided into 3 types, namely framework, mixed and light steel.

Machinery equipment assets of Huayou included in this valuation are mainly compressors exclusively for natural gas stations and equipment for anti-explosion, fire-fighting, monitoring and other purposes, which are located in 4 CNG gas stations under Huayou. Electronic equipment mainly includes computers, air conditioners, printers and other office equipment. Motor vehicles are mainly passenger cars.

Oil and gas assets of Huayou included in this valuation are 58 gas wells (excluding those fall into the category of construction in progress). They are located in (Data) and (Qionglai) natural gas mining district, of which 28 are found in the former and 30 in the latter.

5. Operation of the Company

Accounting statements of Huayou for 2006 were audited by and 2007 and 2008 accounting statements were audited by .

As at 31 August 2009, according to the audited statements of the parent company of Huayou, total assets amounted to RMB1,238,666,800, liabilities amounted to RMB450,544,100, net assets amounted to RMB788,122,700; as for the period from January to August 2009, income from core businesses amounted to RMB93,826,300, total profits amounted to RMB41,161,200 and net profits amounted to RMB32,655,500.

Table 3-7 Assets and Financial Positions in the Statement of Huayou

			_Unit: _	RMB’0,000
				As at
	As at 31 December			31 August
Item	2006	2007	2008	2009
Total Assets	34,330.11	48,506.61	55,211.13	123,866.68
Net Assets	24,118.04	25,970.65	32,031.27	78,812.27
				January
				to August
Item	2006	2007	2008	2009
Income from Core Business	5,206.65	9,088.17	13,266.88	9,382.63
Total Profits	1,453.49	3,073.29	6,080.91	4,116.12
Net Profits	1,175.85	2,702.60	5,322.55	3,265.55

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

The Tian Jian Guang Hua Suo Shen (2009) Zhuan Zi No. 020516 audit report was issued by in respect of the accounting statement as at 31 August 2009.

Special note: Data from the above table is audited data extracted from the statement.

6. Scope of Core Business and Key Results of the Company

The current scope of operation of Huayou is primarily the mining of natural gas and sales of compressed natural gas. The results of the core business for the last 3 years were as follows:

In 2006, sales of natural gas amounted to 31,370,000 cubic metres, sales of compressed natural gas amounted to 16,770,000 cubic metres, sales income amounted to RMB52,066,500 or an increase of 88%, total profits amounted to RMB14,534,900 or an increase of 46%, and net profits amounted to RMB11,758,500 or an increase of 23%.

In 2007, sales of natural gas amounted to 73,550,000 cubic metres, sales of compressed natural gas amounted to 16,190,000 cubic metres, sales income amounted to RMB90,881,700 or an increase of 75%, total profits amounted to RMB30,730,000 or an increase of 114%, and net profits amounted to RMB27,020,000 or an increase of 130%.

In 2008, sales of natural gas amounted to 68,596,300 cubic metres, sales of compressed natural gas amounted to 16,530,000 cubic metres, sales income amounted to RMB132,668,800, total profits amounted to RMB60,809,100 and net profits amounted to RMB5,322.55.

For the period from January to August 2009, sales of natural gas amounted to 45,374,100 cubic metres, sales of compressed natural gas amounted to 14,005,800 cubic metres, sales income amounted to RMB9,382.63, total profits amounted to RMB41,161,200 and net profits amounted to RMB32,655,500.

Huayou is the first cross-sector and cross-district joint stock limited company principally engaged in the operation of compressed natural gas for the automobile industry in China.

Huayou is a high technology enterprise in Sichuan Province (No: 0351001B0487) and it has first constructed CNG gas stations and achieved the economy of scale by industrialisation. 42 CNG gas stations have been constructed within the State by Huayou, thereby securing the leading position among enterprises engaged in the operation of CNG gas stations in Sichuan.

Huayou enjoys high reputation and popularity in the industry both in China and overseas: it is a member of Sichuan Province Natural Gas Vehicle Office Expert Team, the executive officer of Electronic Vehicle and Alternative Fuel Vehicle Branch of the

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

Society of Automotive Engineering of China, the vice president of Sichuan Province Vehicle Engineering Association and the chairing member of Sichuan Province Natural Gas Vehicle Professionals Committee.

7. Prospects for Future Development of the Company and Macro-economic Factor Affecting Production and Operation Activities

On 8 November 2007, the National Development and Reform Commission issued the “The Notice of National Development and Reform Commission on Issues of Adjustment to the Price of Natural Gas ( )”, stating that the development of gas for the use of motor vehicles is prioritised and the price of which is pegged with that of 90 octane petrol. Accordingly, the pricing mechanism of gas for motor vehicles was further formalised. The rapid development of the gas industry these years is mainly attributable to the big difference between the prices of petrol and gas. With reference to the direction of policies, the income and profit of the natural gas industry will fluctuate with the volatile price of oil, thus greatly increasing the pricing risk of enterprises operating in the gas industry. The growth of the natural gas market will slow down with adjustments, if any, to the pricing policy.

(IV) Other User (excluding the Principal) of the Valuation Report

Other users (excluding the principal) of the report are the principals of the economic activity corresponding to this valuation as stated in the assets valuation engagement agreement and other report users stipulated in the laws and regulations of China.

II. EXPLANATION OF PURPOSE OF VALUATION

The purpose of this valuation is to reflect the market value of the entire interests of shareholders of Huayou as at the valuation date for the purpose of providing a pricing reference for the proposed acquisition of equity interests in Huayou by CNPC (Hong Kong) Limited.

III. SCOPE AND SUBJECT OF VALUATION

The subject of valuation is the entire shareholders’ equity in Huayou as at the valuation date and the scope of valuation is all the assets and liabilities as stated in the balance sheet of Huayou as at the valuation date. The audited carrying amount of total assets, liabilities and net assets are RMB1,238,666,801.94, RMB450,544,099.89 and RMB788,122,702.05 respectively. The carrying value of total assets particularly comprises current assets with a carrying value of RMB594,278,867.61, non-current assets with a carrying value of RMB644,387,934.33, current liabilities with a carrying value of RMB145,376,589.09 and non-current liabilities with a carrying value of RMB305,167,510.80.

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

structures under normal usage. “Building Ownership Certificates” have been issued in respect of properties located in Longquanyi District and Wenjiang County and composite buildings in Chongzhou City, whereas those of the remaining 4 properties, namely the offices, compressor rooms and control rooms of Shilidian gas station and Chongzhou gas station, are still pending.

Machinery equipment assets of China Natural Gas included in this valuation are mainly compressors exclusively for natural gas stations and equipment for anti-explosion, fire-fighting, monitoring and other purposes, which are located in 4 CNG gas stations under Huayou. Electronic equipment mainly includes computers, air conditioners, printers and other office equipment. Motor vehicles are mainly passenger cars. Except for 2 storage wells, 1 set of petrol refilling equipment, 1 set of submerged pump, 1 set of gas refilling equipment, 1 IC card management system and 1 Chevrolet APV with the registration mark of 0-57343 which have become obsolete, other equipment is in normal working condition.

Oil and gas assets of Huayou included in this valuation are 58 gas wells (excluding those fall into the category of construction in progress). They are located in (Data) and Qionglai ( ) natural gas mining district, of which 28 are found in the former and 30 in the latter. These wells are owned by Huayou and are in normal working condition.

The above scope and subject of valuation are consistent with those entrusted to be valued. According to title documents and relevant statements provided by Huayou, titles to those assets are all attributable to Huayou.

IV. TYPE OF VALUE AND DEFINITION

Based on the purpose of this valuation, it is confirmed that a market value will be concluded hereunder.

Market value refers to the estimated transaction value of assets in a normal and fair deal made on the valuation date between a willing buyer and a willing seller wherein both parties act knowledgeably and without compulsion.

V. VALUATION DATE

The date of this valuation is 31 August 2009.

In order to speed up the entire procedure, upon negotiations with all relevant parties, and taking into consideration of the necessity of making the valuation date as close to the completion date of the purpose of this valuation as possible and the practicability of completing the valuation, the valuation date is confirmed to be 31 August 2009.

VI. BASIS OF VALUATION

The basis of valuation adopted in this assets valuation mainly include the basis of economic activities, the basis of laws, rules and regulations, the basis of valuation principles, the basis of assets ownership and the pricing reference and other reference material used when determining the related values. Details are set out as follows:

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APPENDIX II

(I) Basis of Economic Activities
the valuation assignment letter of CNPC (Hong Kong) Limited

(II) Basis of Laws, Rules and Regulations

“Company Law of the People’s Republic of China” (revised on the 18th meeting of the Standing Committee of the 10th National People’s Congress held on 27 October 2005);
“Land Administration Law of the People’s Republic of China” (revised on the 11th meeting of the Standing Committee of the 10th National People’s Congress held on 28 August 2004);
“Urban Real Estate Administration Law of the People’s Republic of China” (Decree No. 29 of the President of the People’s Republic of China, revised on the 29th meeting of the Standing Committee of the 10th National People’s Congress held on 30 August 2007);
“Administration Measures on Appraisal of State-owned Assets” (Decree No. 91 of the State Council, 1991);
“Opinions of the Ministry of Finance with regard to the Reform of Administrative Methods of State-owned Assets Appraisal and the Strengthening of Supervision and Administration of Assets Appraisal” (Guo Ban Fa [2001] No. 102, 2001);
“Provisional Regulations on the Supervision and Administration of State-owned Assets of Enterprises” (Decree No. 378 of the State Council, 2003);
“Provisional Measures on the Administration of Transfer of State-owned Property of Enterprises” (Decree No. 3 of the State-owned Assets Supervision and Administration Commission and the Ministry of Finance of the State Council, 31 December 2003);
“Provisional Measures on the Administration of Appraisal of State-owned Property of Enterprises” (Decree No. 12 of the Stated-owned Assets Supervision and Administration Commission of the State Council, 25 August 2005);
“Notice of Related Issues in Strengthening Administration on State-owned Assets Appraisal” (Guo Zi Wei Chan Quan [2006] No. 274);
other laws, rules and regulations and regulatory frameworks relevant to valuation.

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

(III) Basis of Valuation Principles

“Principles for Assets Appraisal – Basic Principles” (Cai Qi [2004] No. 20);
“Ethical Norms for Assets Appraisal – Basic Norms” (Cai Qi [2004] No. 20);
“Principles for Assets Appraisal – Appraisal Report” (Zhong Ping Xie [2007] No. 189);
“Principles for Assets Appraisal – Appraisal Procedures” (Zhong Ping Xie [2007] No. 189);
“Guidance on Price Model of Assets Appraisal” (Zhong Ping Xie [2007] No. 189);
“Principles for Assets Appraisal – Machine and Equipment” (Zhong Ping Xie [2007] No. 189);
“Principles for Assets Appraisal – Real Estate” (Zhong Ping Xie [2007] No. 189);
“Guidelines on Appraisal Reports of State-owned Assets of Enterprises” (effective from 1 July 2009);
“Guidance on Appraisal of Enterprise Value (Trial)” (the China Appraisal Society, 30 December 2004); “Guidelines on Appraisal Reports of State-owned Assets of Enterprises” (Zhong Ping Xie [2008] No. 218);
“Regulatory Opinions on Operations of Assets Appraisal (Trial)” (promulgated by the China Appraisal Society on 7 May 1996);
“Guidance to Entitlement of Valuation Object for Certified Assets Appraisers” (the Chinese Institute of Certified Public Accountants, 2003);
“Enterprise Accounting Standard – Basic Standards” (Decree No. 33 of the Ministry of Finance of the People’s Republic of China);
38 specific accounting standards, including “Enterprise Accounting Standard No. 1 – Inventories” (Cai Hui [2006] No. 3 of the Ministry of Finance of the People’s Republic of China);
“Enterprise Accounting Standard – Application Guide” (Cai Hui [2006] No. 18 of the Ministry of Finance of the People’s Republic of China);
“Regulatory Standard of Property Valuation” (GB/T50291-1999);
“Valuation Procedures of Land in Urban and Town Areas” (GB/T18508-2001);
“Rating Procedures of Land in Urban and Town Areas” (GB/T18507-2001).

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

(IV) Basis of Assets Ownership

property ownership certificates;
licences of motor vehicles;
contracts or invoices for acquisition of major assets;
other evidential documents for assets ownership.

(V) Pricing Reference

Notice on the Publication of “Requirements of Financial Management of Infrastructure” by the Ministry of Finance (Cai Jian [2002] No. 394);
Notice of the State Planning Committee and the Ministry of Construction with regard to the “Administrative Measures on Fee Collection of Construction Inspection and Design” (Ji Jia Ge [2002] No. 10);
“Supplemental Notice on Related Issues of the Administrative Measures on Fee Collection of Construction Inspection and Design” by the offices of the State Planning Committee and the Ministry of Construction (Ji Ban Jia Ge [2002] No. 1153);
Notice on the Publication of “Administrative Measures on Fee Collection of Construction Project Supervision and Related Services” by the National Development and Reform Commission and the Ministry of Construction (Fa Gai Jia Ge [2007] No. 670);
“Provisional Measures on Fee Collection of Tendering Agency Services” promulgated by the National Development and Reform Commission (Ji Jia Ge [2002] No. 1980);
“Notice on Related Issues of Regulating Fee Collection of Environmental Consultancy” by the National Development and Reform Commission and the Ministry of Environmental Protection of China (Ji Jia Ge [2002] No. 125);
“Provisional Regulations on Vehicle Purchase Tax of the People’s Republic of China” (Decree No. 294 of the State Council of the People’s Republic of China, 22 October 2000);
“Obsolescence Standards on Motor Vehicle” (the former State Economic and Trade Commission, Guo Jing Mao Jing [1997] No. 456);
“Notice on the Amendments to Obsolescence Standards on Motor Vehicle” (the former State Economic and Trade Commission, Guo Jing Mao Zi Yuan [2000] No. 1202);

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

“Loan Interest Rate Lists of the People’s Bank of China” (effective from 23 December 2008);
“Defined Pricing List for Construction Project in Sichuan Province – Construction Project” (2004):
“Defined Pricing List for Construction Project in Sichuan Province – Decoration Project” (2004):
“Defined Pricing List for Construction Project in Sichuan Province – Installation Project” (2004):
“Sichuan Project Pricing Information” (August 2009);
“Regulatory Standard of Design and Construction of Petrol and Gas Station for Motor Vehicle” (GB50016-2002, 2006 version);
“Nationwide Defined Term for Construction and Installation Projects”;
Building Aging Identification (evaluation standard for integrity and damage);
“Research Report on the Updating of Base Land Price in Central Districts in Chengdu City”;
“Handbook of Mechanic and Electric Products Quotation” (2009);
“National Standard of Gas Refilling Machines for Compressed Natural Gas for Motor Vehicles GB/T 2003”
related information from the price information data base of China United Assets Appraisal Co., Ltd.;
Other reference material.

(VI) Other Reference Material

business License of Huayou (copy);
accounting statements and audit reports of Huayou for the years of 2006, 2007 and 2008 and as of the valuation date;
“Handbook for Common Data and Parameter in Assets Appraisal (Second Edition)” (Beijing Science and Technology Press, 1996);
Wind information Financial Terminal;
“Investment Valuation” (by Damodanran; U.S., translated by Lin Qian (Canada), published by Tsinghua University Press in 2004);

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

“Valuation: Measuring and Managing the Value of Companies” (Third Edition) (by Copeland, T. (U.S.), etc.; translated by Hao Shaolun and Xie Guanping; published by Publishing House of Electronics Industry in 2002);
relevant technical data of construction works and geological survey;
other reference material.

VII. VALUATION METHOD

Based on the economic activity and the purpose of this valuation as well as the characteristics of the valuation subject, the cost method and the income method were adopted in the valuation of the entire interests of shareholders of Huayou.

Asset valuation methods principally include the replacement cost method, the income present value method and the market comparison method.

The replacement cost method mentioned in this report is a valuation approach whereby the difference between all the costs needed to repurchase or build an asset under valuation in brand new conditions and the substantive depreciation, functional depreciation and economic depreciation is used as the appraisal value of the assets under valuation. When specifically assessing the appraisal value, the residue ratio of assets are first ascertained for depreciation purposes, then the product of the total costs (total replacement cost) times the residue ratio will be used as the appraisal value of the assets under valuation.

According to the income present value method mentioned in the report, the expected income forecast under the ongoing basis is divided into two parts. Firstly, a forecast is made on the expected annual income for a certain number years in the future, and these incomes are converted into present values with an appropriate discounting rate respectively. Secondly, assuming that the expected income for each subsequent year is the same starting from one year after those years mentioned above, the expected income of each year is discounted into a present value and capitalised. Finally, the discounted present values of the incomes of these two periods are added together as the appraisal value.

The market comparison method mentioned in this report is an approach for ascertaining appraisal values of assets under valuation, whereby the same or similar assets in the market are selected as reference assets and the assets under valuation are compared and adjusted in terms of the price difference with each reference asset individually by focusing on factors affecting the values of the reference assets, then various adjustment results are consolidated for analysis to determine the appraisal values of assets under valuation.

In accordance with the economic activities and the features of assets under this valuation and the purpose of this valuation, the valuation results of assets to be valued shall be the open market value under the ongoing basis. Since the current equity market is lack of sufficient and reliable cases for reference, the market comparison method is inappropriate in this case. In this valuation, the cost method and the income method are applied to assess the entire shareholder interests in Huayou. The results will then be analysed.

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ASSET VALUATION REPORT OF HUAYOU GROUP

APPENDIX II

(I) Cost Method

In the valuation of enterprises, the cost method is also known as the assets-base method. According to the cost method, the value of the valuation subject will be determined on the basis of a reasonable assessment of the value of all assets and liabilities of an enterprise.

The valuation method for each category of assets is briefly described below:

I) Current Assets

Current assets under this valuation include monetary funds, accounts receivable, prepayments, other receivables and stock.

Monetary funds: the appraisal value will be determined according to the verified carrying value.
Accounts receivable, prepayments and other receivables: The valuation team makes a detailed analysis of the amount, time and reasons for the outstanding amounts, collection status, debtors’ fund availability, credibility and management situation according to historical data and information found from current investigations after verifying the accuracy of the receivable items. Based on the specific situations of each company, a valuation is made to assess the risk of losses by using individual identification method.

Where there is sufficient ground to believe that the full amount in the current accounts of connected parties can be recovered, the assessed risk of losses is 0%. Where there is concrete proof indicating that the amount cannot be recovered or it is long overdue, the assessed risk of losses is 100%.

The appraisal value is the carrying amount minus assessed risk of losses. The provision for bad debts on the carrying amount is zero.

Valuation of Stock

Stock includes merchandise in stock.

After verifying the actual quantity in stock as at the valuation date, the appraisal value is obtained by multiplying the actual quantity of stock by the actual costs or realisable prices. For stock purchased recently, and which have quick turnover and which do not have a big difference between their carrying amount and their market value plus reasonable expenses, the verified carrying amount will be the appraisal value.

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

II) Non-current Assets

1. Long Term Investment

There are 20 companies under long term investment in companies, of which 13 are wholly-owned subsidiaries and controlled companies and 7 are associated companies. An overall valuation of the controlled subsidiaries under normal operation has been made in order to ascertain the appraisal value from the value of entire shareholders’ interests after the valuation and the shareholding ratio. For investment in non-controlled companies, since the shareholding is relatively small or the span of investment is relatively short, the appraisal value is ascertained from the net assets value as stated in the audited financial statement on the valuation date of the investee company times the shareholding ratio. For non-controlled companies without balance sheets as at the valuation date, the appraisal value is ascertained from the verified carrying amount of investment costs.

2. Fixed Assets – Assets under Building and Construction Category

Based on the construction project information and completion settlement information, and with reference to the quantity of construction works, the current fixed standard, infrastructure expenses and capital costs are used to calculate the full price of replacement of the constructions. The residue ratio is ascertained from the useful life and the on-site inspection of the constructions to calculate the net appraisal value of the constructions.

Appraisal values of buildings and constructions (structures), pipelines and troughs = full price of replacement x residue ratio

(1) Full price of replacement

The full price of replacement is composed of three components, namely construction and installation price, preliminary and other expenses and capital costs.

1) Determining the Construction and Installation Price

The valuation team uses the “Standard for the Pricing of Work Volume List of Construction Projects” (GB50500-2003), “Detailed Pricing List for Decoration Project in Sichuan Province (2004)”, “Detailed Pricing List for Installation Project in Sichuan Province (2004)”, “Detailed Pricing List for Construction Project in Sichuan Province”, “Sichuan Project Pricing

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

Information”, “Standard for the Pricing of Work Volume List of Construction Projects” (GB50500-2008) issued by the Ministry of Construction to calculate the price of construction and installation projects.

2) Determining the Preliminary and Other Expense

Preliminary and other expenses include two elements, namely the construction costs required by the local government and the expenses, other than the construction price, paid by the construction company for the construction projects.

The rate schedule of preliminary and other expenses is set out in the following table:

Table 1-8 Preliminary and Other Expenses of Construction Work in Chengdu City

Serial
No.	Expense Item	Calculation Basis	Rate	Note
1	Management Fee of the	Construction and	1.0%	Cai Jian [2002]
	Construction	Installation Price		No. 394
	Company
2	Prospection and Design	Construction and	2.5%	State Price Bureau
	Fee	Installation Price		and Ministry of
				Construction Ji Jia
				Ge [2002] No. 10
3	Project Supervision Fee	Construction and	1.04-3.30%	NDRC Jia Ge
		Installation Price		[2007] No. 670
4	Agency Fee of Tender	Construction and	0.04-0.20%	State Development
		Installation Price		Planning
				Commission [2002]
				No. 1980
5	Environmental	Construction and	0.70%	State Development
	Assessment Fee	Installation Price		Planning
				Commission and
				Environmental
				Protection Bureau
				Ji Jia Ge [2002]
				No. 125

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

Serial
No.	Expense Item	Calculation Basis	Rate	Note
6	Local Administration
	Fee
(1)	Termite Treatment	RMB / m2	32.00	Cheng Fu Fa
	Costs for Newly			[2004] No. 87
	Constructed
	Buildings Costs of
	Exploration and
	Unearthing Antiques
(2)	Plantation for Greenery	RMB / m2	3.00	Chuan Fu Han
	Costs			[1999] No. 31
(3)	Construction Costs of	RMB / m2	10.00	State Pricing
	Urban Shelters in			Bureau and
	Other Provinces			Ministry of
				Construction
				[2002] Jia Zi No.
				10
(4)	Special Fund for New	RMB / m2	8.00	Cheng Fu Fa
	Construction			[2004] No. 87
	Materials
(5)	Special Fund for Bulk	RMB / m2	1.00	Cai Zong [2002]
	Cement			No. 55

3) Determining the Capital Cost

Capital costs are the interest on loans attributable to the injected capital incurred for the construction period. The applicable interest rate is based on the standard rate fixed by the People’s Bank of China as at the valuation date. The construction period is based on the normal work cycles for construction works assuming that the capital will be equally injected:

Capital costs = (price of construction and installation projects + preliminary and other expenses) x reasonable construction periods x loan rate x 50%

The residue ratio for buildings and structures (constructions) under this valuation is determined by a combination of the on-site prospection residue ratio and the theoretical residue ratio. The applicable comprehensive residue ratio is further computed through the weighted average method with a proportion of 6:4 for the on-site residue ratio and the theoretical residue ratio respectively. In particular:

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

Prospection residue ratio N1: upon on-site inspections of each structure (construction), the valuation team rates the on-site prospection residue ratio of each structure separately by taking the foundation, loaded structural parts (beam, panel, pillar), wall, floor, exterior part, door, window, wall finishing, suspended ceiling, water supply and drainage, ventilation, electricity and lighting of structures (constructions) into account with reference to the status under usage and repair and maintenance conditions of structures and according to the “Rating Scale of Grade of Integrity or Damage of Buildings”, the “Basis of Reference for Identifying the Degree of Ageing of Buildings” and “Scoring Scale and Correction Coefficient of Residue Ratio of Buildings” announced by the former Urban and Rural Environmental Construction and Protection Department.

Theoretic residue ratio N2: calculated according to the useful economic life and the useful life consumed of buildings.

Theoretic residue ratio N2 = (1 – useful life consumed / useful economic life) x 100%

Based on the results of the above calculation methods, the applicable residue ratio is further computed through the weighted average method.

Residue ratio N = prospection residue ratio N1 x 60% + theoretic residue ratio N2 x 40%

As for pipelines and troughs, the valuation team calculates the residual ratio with the useful economic life and the useful life consumed of the pipelines and troughs.

Residue ratio = (1 – useful life consumed / useful economic life) x 100%

1) Regarding commercial buildings bought in the market, the market comparison method is applied. Under the market method, the substitution principle is adopted to establishing property prices whereby a comparison is made among the property to be valued and transactions of similar properties concluded recently, and revisions are made according to the known prices of the latter, differences among the transaction situation, dates, regional and individual factors so as to determine the property price of the valuation subject at a particular moment. The formula is as follow:

Price of the property to be valued = price of the property in actual case for comparison x (adjustment factor of the valuation subject to be valued / adjustment factor of the actual case for comparison) x (property price index of the valuation subject on the valuation date / property price index of the actual case for comparison on the transaction date) x (adjustment index of regional factors and conditions of the valuation subject / adjustment index of regional

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ASSET VALUATION REPORT OF HUAYOU GROUP

APPENDIX II

factors and conditions of the actual case for comparison) x (adjustment index of individual factors and conditions of the valuation subject / adjustment index of individual factors and conditions of the actual case for comparison)

2) Choice of Actual Case for Comparison

When choosing actual cases of transactions for comparison, based on the situation of the valuation subject, the following requirements shall be fulfilled:

A. same purposes;
B. same type of transactions;
C. normal transactions;
D. similar regional and individual factors and conditions;
E. standardised price basis.

For this valuation, three recent successful property transactions with the same purposes as the valuation subject have been chosen, and an adjustment to factors is made in respect of factors affecting property prices in order to determine the price of the valuation subject.

For other buildings and constructions (structures), based on the on-site prospection and all valuation factors, the replacement unit price is ascertained and the net appraisal value is computed using the analogy method.

4. Fixed assets – Equipment Assets

According to the purpose of the valuation, in the principle of ongoing utilisation and based on the market price as well as taking into consideration of the characteristics of the equipment to be valued and the data collected, the replacement cost method is mainly adopted for the valuation.

Appraisal value = full price of replacement x residue ratio

(1) Determining the Full Price of Replacement

The full price of replacement for the equipment is determined based on its purchase price with consideration of various fees incurred before it reaches the normal working condition, including purchase price, transportation and miscellaneous fees, installation and commissioning fees, other fees of engineering construction and capital costs.

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

Full price of replacement = purchase price of equipment + transportation and miscellaneous fees + installation and commissioning fees + other fees + capital costs

(1) Purchase Price of Equipment

The purchase prices of the standard and ordinary equipment are determined mainly through making enquiries to manufacturers and equipment procurement department of Huayou, or referring to the “Mechanical and Electrical Products Quotation Manual 2009” and searching contracts and invoices in respect of equipment recently purchased by Huayou and recent quotations for similar equipment. Where there is a limited number of equipment that an enquired purchase price is not available, the purchase price is imputed based on the price change ratio for the equipment of the same age and same type.

For non-standard and self-made equipment, a “Non-standard Equipment Control Form” shall be completed according to the category of equipment, and is used to record the weight of main materials, the weight of special materials as well as the quantity, specifications and types of major parts purchased from the market, upon which the pre-tax prices of main and auxiliary materials and parts purchased from the market are calculated. On top of that, the full price of replacement is calculated through taking into consideration of various fees, namely manufacturing fees of main body parts, installation and commissioning fees, design fees, profit and taxes.

(2) Transportation and Miscellaneous Fees

Transportation and miscellaneous fees are based on the purchase price and are charged according to the distance between the manufacturer and the location of the equipment and the rates of transportation services.

(3) Installation and Commissioning Fees

According to the characteristics of equipment and the weight and the difficulty in installing equipment, installation and commissioning fees are based on the purchase price and are charged according to different rates of installation fees. As to the small-sized equipment and equipment needs no installation, installation and commissioning fees are not applicable.

(4) Other Fees of Engineering Construction

The chargeable items of the preliminary engineering construction and other fees mainly include management fees of construction companies, construction supervision fees, prospection and design fees, agency fees of engineering tender and integrated trial operation fee. The fees are detailed as follows:

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ASSET VALUATION REPORT OF HUAYOU GROUP

APPENDIX II

Table 1-9 Other Fees of Engineering Construction

Serial
Number
Category of Fee
1
Management Fee of
Construction Company
2
Environmental
Assessment Fee
3
Prospecting and Design
Fee
4
Project Supervision Fee
5
Agency Fee of Tender
6
Integrated Trial
Operation Fee
Total

Rate
Formula
Charging Basis
(%)
1
Construction and
Installation Cost x
Rate
Cai Jian [2000]
No. 394
0.70
Construction and
Installation Cost x
Rate
State Development
Planning
Commission and
Environmental
Protection Bureau Ji
Jia Ge [2002]
No. 125
2.5
Construction and
Installation Cost x
Rate
Ji Jia Ge [2002]
No. 10
2.5
Construction and
Installation Cost x
Rate
NDRC Jia Ge [2007]
No. 670
0.7
Construction and
Installation Cost x
Rate
Ji Jia Ge [2002]
No. 1980
1.5
Construction and
Installation Cost x
Rate
“Composition and
Compilation Method
of Other Fees of
Engineering
Construction” Jian
Biao [1996] No. 628
8.207

(5) Capital Costs

Capital costs are calculated based on the purchase price of the equipment, transportation and miscellaneous fees, installation and commissioning fees and other fees of engineering construction, the reasonable construction period for the capital invested and the loan rate prevailing on the valuation date. For equipment which can be used immediately without installation or has a relatively short construction period, capital costs are not applicable.

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The replacement price of electronic equipment is determined mainly through enquiring the then relevant quotation information;

The replacement price of motor vehicles is determined based on the prevailing pre-tax market price of similar motor vehicles on the valuation date after taking the corresponding costs, such as purchase surtax, license fees and handling charges, into consideration.

(2) Determination of Residue Ratio

(1) Residue Ratio for Machinery Equipment

The theoretical residue ratio, N1 and the prospection residue ratio, N2, is determined respectively and the residue ratio, N, is then determined through the weighted average method. That is: Residue ratio N = theoretical residue ratio N1 x 0.4 + prospection residue ratio N2 x 0.6

Theoretical residue ratio N1: it is calculated based on the economic life for different types of equipment assessed according to their useful life consumed, and the remaining useful life in excess of the economic life assessed on the basis of the on-site prospection and the overhaul cycle of the equipment:

Theoretical residue ratio N1 = (1 – useful life actually consumed / useful economic life) x 100%

Prospection residue ratio N2: it is determined through the on-site prospection of the present status of the equipment and the referral to the archive information in relation to operation, repair and management as well as the prospection of each of the component of the equipment.

(2) Residue Ratio for Motor Vehicles

Pursuant to the “Notice on the Amendments to Obsolescence Standards on Motor Vehicle”, the residue ratio calculated using the straight line method or that using the mileage method (at the lower) for different types of motor vehicles shall be selected as the theoretical residue ratio; to the extent of which, the valuation team adjusts the theoretical residue ratio based on the on-site assessment of the motor vehicles. The adjusted theoretical residue ratio is the comprehensive residue ratio.

Where:

a) The calculation formula for the residue ratio determined using the straight line method is:

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Residue ratio determined using the straight line method = (designated useful life – useful life consumed) / designated useful life x 100%

b) The calculation formula for the residue ratio determined using the mileage method is:

Residue ratio determined using the mileage method = (designated mileage traveled – mileage traveled) / designated mileage traveled x 100%

c) Determination of coefficient of adjustment through on-site assessment: the valuation team, together with relevant experts, conduce an on-site assessment of the motor vehicles and obtain from drivers, repairers and management the information regarding the operation of the motor vehicles, the intensity and frequency of use and daily repair and maintenance as well as overhauls, so as to determine whether there is any early or delayed obsolescence assuming the motor vehicles continues to be used on a “as is” basis. All the aforesaid are used to determine the coefficient of adjustment.
(3) Residue Ratio for Electronic Equipment

Residue ratio = (1 – useful life consumed / useful economic life) x 100%

or residue ratio = [remaining useful life / (useful life consumed + remaining useful life)] x 100%

Note: As to electronic equipment valued on the basis of prices in the secondary market, no residue ratio is calculated.

(3) Determining the Appraisal Value

Appraisal value = full price of replacement x residue ratio

5. Construction in Progress – Civil Works

After investigation and verification, civil works are uncompleted gas wells. Subject to the reasonableness of the project budget, the valuation team verifies the truthfulness of the contracts and agreements based on the investigation and verification of the image progress of the projects. The carrying value refers to drilling expenses, and the carrying costs mainly comprise of pre-drilling costs, drilling costs, well cementing costs, mud logging costs, logging costs, well testing costs, management fees and risk fees, as well as amortisation costs for dry wells and capital costs for the reasonable construction period, generally reflecting the value as at the valuation date. Therefore, the carrying value is the appraisal value.

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APPENDIX II

6. Oil and Gas Assets

In valuing oil and gas assets, the appraisal net values of various oil and gas assets are determined with the replacement cost method on a going concern for the purpose of this valuation. The calculation formula is:

Appraisal value = full price of replacement x comprehensive residue ratio

(1) Determining the Appraisal Original Value

The appraisal original value of oil and gas assets is determined with different methods based on individual features of various types of oil and gas assets.

A. Determining the Appraisal Original Value of Oil, Gas and Water Wells

The appraisal original value of oil, gas and water wells comprises of all costs incurred during the period from the commencement of pre-drilling works to the completion and reporting of well testing, including pre-drilling costs, drilling costs, well cementing costs, mud logging costs, logging costs, well testing costs, management fees and risk fees, as well as amortisation costs for dry wells and capital costs for the reasonable construction period.

Appraisal original value = engineering costs + amortisation costs for dry well + capital costs

a. Engineering Costs

Each category of engineering costs is clearly defined in “Work Quota for Drilling Engineering” and “Work Quota for Well Testing”. The re-compilation budget method is adopted for the valuation to calculate the engineering cost of a typical well.

b. Amortisation Costs for Dry Wells

Dry wells below the industrial oil output standard may arise in the oilfield in the development and production of oil and gas due to a number of factors, including geological structures and exploring technologies and equipment. To consider the oilfield as a whole, the reasonable investment in these dry wells should be recovered through the normal operating wells within the same oilfield. In this valuation, the amortisation cost for dry wells is determined after ascertaining the amortisation rate as a whole according to the historical data of number of wells within the oilfield, proportion of dry wells and their costs.

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APPENDIX II

c. Capital Costs

Oil and gas assets to be valued have a reasonable construction period of 6 months, and its investment scale is accounted for according to the equal investment basis with an applicable interest rate of 4.86%.

B. Determining the Appraisal Original Value of Mass Transportation Facilities of Oil and Gas

Mass transportation facilities of oil and gas include mass transportation stations, united stations, transit stations and metering stations.

Assets of each station are divided into two types, namely houses and buildings, and equipment. Each station is built for a specific useful life and mostly is simple in design because the reserve and useful life of each oil and gas field is greatly varied. Accordingly, in this valuation, facilities within a single station are valued separately by assessing individual houses and buildings, structures and other ancillaries as well as machines and equipment. The appraisal values are then aggregated to determine the original values of such houses and buildings, structures and other ancillaries as well as machines and equipment. The valuation method is the same as other types of assets.

Huayou does not operate its own mass transportation stations, united stations, transit stations and metering stations, but shares the mass transportation stations with Shu’nan Gas Production Division under Southwest Oil and Gas Field Branch. Also, it does not have its own houses and buildings and only possesses the pipeline metering facilities which are valued together with pipelines and troughs.

C. Gas transportation refers to the pipelines connecting the oil and gas wells in the oilfield and the mass transportation stations; power lines are lines transmitting electrical power to each well via the power box of the mass transformation stations; other oil and gas facilities refer to machinery and equipment used in the gas collection area of the oil and gas field, excluding the mass transportation facilities.
(2) Determining the Residue Ratio
A. Determining the Residue Ratio of Oil, Gas and Water Wells

The oil, gas and water wells are highly durable, and the useful life of which is generally longer unless sleeves and oil pipelines are damaged in contingencies, including diastrophism and earthquakes. Having made investigation and on-site inspection, the Wenchuan earthquake on 12 May 2008 did not damage the wells of the oil and gas field.

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ASSET VALUATION REPORT OF HUAYOU GROUP

The function of the oil and gas wells is to produce oil and gas. The useful life of wells ceases and the residue ratio becomes zero when the oil and gas resources in the stratum where the wells are located become depleted and exhausted or the value brought by possible exploration activities is lower than the exploration cost. Generally, the productivity of wells is diminishing with time. That is, during the life span of wells, the diminishing rate is high in the relatively short initial period with high output while the diminishing rate is low in the relatively long remaining useful life with low output, roughly matching the rule of exponential decline. According to the above theory, the reserve / production ratio is measured by considering the consolidated diminishing rate and the economic recoverable reserves of the oilfield as a whole, and the expected output of each block is determined based on the reserve / production ratio and the economic recoverable reserves of each block. Consequently, the remaining economic recoverable reserves of a single well can be concluded from the accumulated yield per unit area. At last, the residue ratio is arrived based on the correlation between the remaining economic recoverable reserves of a single well and the accumulated output of a single well. This valuation adopts the following formula to calculate the residue ratio of oil and gas wells:

Residue rate of oil and gas wells = remaining economic recoverable reserves of a single well / (accumulated output of a single well + remaining economic recoverable reserves of a single well)

The accumulated output of a single well means the accumulated output from the commencement of operation of a single well to the valuation date, which is reasonably obtained from the statistics of daily, monthly and annual production reports.

Remaining economic recoverable reserves of a single well = remaining economic recoverable reserves of the block where the well are located x allocated ratio of remaining economic recoverable reserves of the single well. Relevant data is redetermined by geological professionals having referring to the historical information.

B. Determining the Residue Ratio of Oil and Gas Mass Transportation Facilities

Taking into account the features of oil and gas mass transportation facilities, the renovation, upgrading, modifying, expanding and maintenance conditions of each system of oil and gas mass transportation facilities and the geological reserves, quality and production capacity of each block, the comprehensive residue ratio of oil and gas mass transportation facilities is determined according to the on-site inspection and technological examination after analysing and considering all the relevant factors as a whole.

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APPENDIX II

Factors affecting the comprehensive residue ratio of oil and gas mass transportation facilities mainly include technological conditions, the useful life and the oil and gas reserves of the block where they are deployed (i.e. useful life of the block). The span of actual useful life is subject to the actual use of specific ancillary facilities. The maximum useful life in respect of assets unable to be demolished and relocated shall not exceed the useful life of the block where they are deployed.

C. The determination of the comprehensive residue ratio of gas pipelines, power lines and other oil and gas equipment is basically the same as equipment assets, having resemblant features with those of oil and gas mass transportation facilities, which is related to the useful life of the block where they are deployed.

7. Fixed Assets – Land Use Right

The generally accepted land premium valuation methods under “Valuation Procedures of Land in Urban and Town Areas” are the market comparison method, the capitalisation of income method, the residual method (the hypothetical development method), the cost approach method and the adjustment method of the benchmark land value index. The proper selection of a valuation method shall be conducted according to the technological “Procedures” of land premium valuation with reference to the development of local property market, the characteristics specific to the valuation subject and the valuation purpose.

After duly analysing the information obtained and completing the on-site inspection, the valuation team selects two valuation methods, namely the adjustment method of the benchmark land value index and the cost approach method, in determining the final land premium value, taking into consideration of the characteristics of the land concerned, the valuation purpose and the development of land market.

8. Intangible Assets – Other Intangible Assets

Other intangible assets refer to related fees paid in connection with the acquisition of franchise rights of gas refilling stations. The valuer verifies the expense incurred in the acquisition of franchise rights and the operation period of these rights, and also examines the acquisition agreement and original evidence, thereby determining the appraisal value of the franchise rights amortised over the operation period with the verified carrying value.

9. Liability

The actual debtor and incurred amount of each liability item upon the realisation of the purpose of this valuation are examined and verified. The appraisal value is then determined on the basis of the liability item and amount actually undertaken by the entity to be valued upon the realisation of the valuation purpose.

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APPENDIX II

(II) Income Method

According to the income method in the valuation of enterprise value, the value of the valuation subject is determined by capitalising or discounting the expected income of the entity under valuation. The basic procedures are as follows:

As to assets and principal businesses included in the financial statements, the expected income (net cash flow) is estimated according to the development trend of the historical operation and the business category, which is discounted to the value of operating assets;
As to cash assets (liabilities), including monetary funds, dividends receivable and payable as at the valuation date, and assets like doubtful or idle equipment, properties and construction in works before determining the profit or loss as at the valuation date, included in the financial statements but are not taken into account in estimating the expected income (net cash flow), they are classified as surplus or non-operating assets (liabilities) subsisted as at the valuation date. The value of this category is appraised separately;
The enterprise value of the valuation subject is obtained by aggregating the values of the above assets and liabilities while the value of shareholders’ total equity in the valuation subject is arrived after deducting the value of interest bearing debts as at the valuation date.
Valuation Model
(1) The basic valuation model in this valuation is:

==> picture [49 x 7] intentionally omitted <==

E: value of shareholders’ total equity (net assets) of the valuation subject;
B: enterprise value of the valuation subject;

==> picture [61 x 8] intentionally omitted <==

P: value of operating assets of the valuation subject;

==> picture [57 x 22] intentionally omitted <==

Ri: expected income for the ith year in future (free cash flow) of the valuation subject;
r: discount rate;
n: operating period for the valuation subject in future;

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

�Ci: value of other non-operating or surplus assets (liabilities) of the valuation subject as at the valuation date;

� Ci = C1 + C2

C1: value of cash assets (liabilities) of the valuation subject as at the valuation date;
C2: value of other surplus or non-operating assets (liabilities) of the valuation subject as at the valuation date;
D: value of interest bearing debts of the valuation subject;
(2) Income Indicator

In this valuation, the enterprise free cash flow is taken as the income indicator for operating assets of the valuation subject. The basic definitions of which is as follow:

R = net profit + depreciation and amortisation + interest on interest bearing debts after tax – additional capital

The expected future free cash flow of the valuation subject is estimated in accordance with the operation history and market development in future. The free cash flow for the future operation period is discounted and aggregated to calculate the value of operating assets of the enterprise.

(3) Discount Rate

In this valuation, the Weighted Average Cost of Capital (WACC) model is applied to determine the discount rate “r”:

r = rd x wd + re x we

Wd: debt ratio of the valuation subject; D wd = (E+D)

We: equity ratio of the valuation subject;

E we = (E+D) re: cost of equity capital; in this valuation, the Capital Asset Pricing Model (CAPM) is applied to determine the cost of equity capital “re”;

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

rf:

risk-free return rate;

rm: market expected return rate;

�: characteristic risk-adjusted factor of the valuation subject;

�e: expected market risk factor of equity capital of the valuation subject;

==> picture [122 x 26] intentionally omitted <==

�u:

unleveraged market risk factor of a comparable company;

==> picture [89 x 46] intentionally omitted <==

�t: expected average market risk factor of shares in a comparable company;

==> picture [105 x 12] intentionally omitted <==

K: average risk value for a certain period in the stock market, normally assuming K=1;

�x: historical average market risk factor of shares in a comparable company

==> picture [91 x 30] intentionally omitted <==

Cov (Rx, Rp): covariance between the return rate of selected shares and that of a share market portfolio for a certain period;

�p: variance of the return rate of a share market portfolio for a certain period;

Di and Ei: the interest bearing debts and the equity capital of a comparable company.

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

VIII. IMPLEMENTATION AND PROCEDURE OF VALUATION

The entire valuation is conducted in four stages:

(I) Preparation

In mid-September 2009, we reached an agreement through negotiations with the principal and the entity to be valued in respect of the purpose of this valuation, the valuation date and the scope of valuation, and prepared an assets valuation working plan.
We worked together with the entity to be valued in verifying assets and preparing assets valuation declaration lists. On 9 October 2009, the valuation team visited the site to have a general understanding of assets to be valued, assist the entity in reporting assets to be valued and collect documents and information required for assets valuation.

(II) On-site Valuation

The valuation team implemented the on-site valuation from 10 October 2008 to 20 October 2008, which was mainly involved in following activities:

listened to the general introduction to the entity and the history and current status of assets to be valued made by relevant staff from the principal and the entity to be valued, getting to know more about the financial system, the operating status and the technical status of fixed assets;
verified and identified the assets declaration list provided by the entity, verified data in relevant financial records of the entity and worked with the entity to make adjustments for discovered problems;
conducted an overall check-up and validation to fixed assets as stated in the assets declaration list according to the requirements of document No. 91 and valuation principles, implementing general inspection on intangible assets as well as random checking on stocks under current assets;
inspected and collected documentary evidence of title rights of assets to be valued;
determined specific valuation methods for each type of assets to be valued with reference to the actual status and characteristics of assets;
as to major equipment, looked up technical information and acceptance documents; as to general equipment, collected pricing information mainly by means of market investigation and enquiries;
made preliminary valuation estimation for assets and liabilities within the valuation scope after checking and verifying relevant information.

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(III) Compilation of Valuation

We analysed and summarized the preliminary results after valuing and reviewing various assets and liabilities during the period from 21 October 2008 to 27 October 2008 for the adjustment, modification and perfection of the valuation results. We also modified and amended the report repeatedly according to our internal triple checking system and procedures specially designed for assets valuation reports

(IV) Submission of Report

We drafted the assets valuation report based on the works aforementioned as well as exchanged views on the valuation results with the principal. After taking all relevant opinions into consideration, we issued a formal assets valuation report.

We performed this stage of work during the period between 28 October 2009 and 30 October 2009.

IX. VALUATION ASSUMPTION

The valuation team is subject to the following assumptions in this valuation:

(I) General Assumption

1. Assumption of Going Concern

It is an assumption that the valuation method, parameter and basis used in the valuation are determined on the basis that the assets under valuation will be utilised continuously for current purposes and under the prevailing style, scope, frequency and environment, or will be used under changed conditions.

2. Assumption of Trading

It is assumed that all the assets to be valued are being transacted. The valuer evaluates the assets price by simulating a market transaction with reference to, among others, trading conditions of assets to be valued. It is one of the most basic precedent assumptions for a feasible assets valuation.

3. Assumption of Open Market

It is an assumption that both parties of the transaction of assets traded or to be traded in the market rank pari passu and have been provided with sufficient opportunities and time to acquire market information for the purpose of making rational judgment on the function, use and transacted price of the assets. The assumption of open market is on the basis that assets can be traded in the open market.

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(II) Special Assumption

There is no material change to the prevailing macro-economic situation of China.
There is no material change to the applicable taxation policy and tax rate and the social and economic conditions in which the entity is operating.
The future management of the entity duly performs its duties and maintains the existing management style on a going concern.
Inflation is not taken into consideration in this valuation. Subject to the assumptions of this valuation and based on the valuation purpose, it is confirmed that a market value is concluded hereunder. The price reference in the valuation is the pricing standard and value system subsisting as at the valuation date.
No premium or discount of share transfer is considered in this valuation.

X. VALUATION CONCLUSION

China United Assets Appraisal Co., Ltd. performed necessary procedures of assets valuation based on relevant laws, rules and regulations on assets valuation of China with the principle of being independent, fair, scientific and objective in the valuation of all the assets and liabilities of Huayou within the scope of the economic activity mentioned herein. The cost method and the income method were applied in this valuation. The valuation conclusions are as follows:

(I) Valuation Conclusion of the Cost Method

The valuation conclusion as at the valuation date, being 31 August 2009, accomplished by evaluating the total assets and liabilities of Huayou with the cost method is as follow:

The carrying amount of assets is RMB123,866.68, the appraisal value is RMB1,305,842,000 and the valuation surplus is RMB67,175,200. The appreciation rate is 5.42%.

The carrying amount of liabilities is RMB450,544,100 and the appraisal value is RMB450,544,100 also, representing no change.

The net carrying amount of assets is RMB788,122,700 and the appraisal value is RMB855,297,900, representing an increase of RMB67,175,200 over the net carrying amount of assets or an appreciation rate of 8.52%.

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APPENDIX II

Table 7-1 Summary of Results of Assets Valuation

Entity under Valuation: China Natural Gas Co., Ltd Valuation Date: 31 August 2009 Unit: RMB’0,000

Carrying Value 59,427.89 31,911.29 11,543.58 5,732.08 4,452.95 1,358.56 19,821.70 1,162.22 1,123.50	Appraisal Value 59,427.89 39,019.06 12,375.24 5,834.27 4,962.61 1,578.35 15,973.63 3,788.39 3,749.66	Change in Value – 7,107.77 831.65 102.19 509.66 219.80 –3,848.07 2,626.16 2,626.16	Appreciation Rate (%) – 22.27 7.20 1.78 11.45 16.18 –19.41 225.96 233.75
123,866.68 14,537.66 30,516.75 45,054.41	130,584.20 14,537.66 30,516.75 45,054.41	6,717.52 – – –	5.42
			– –
			–
78,812.27	85,529.79	6,717.52	8.52

(II) Valuation Conclusion of the Income Method

The equity capital (net assets) value as at the valuation date, being 31 August 2009, calculated by valuing the equity capital value of Huayou with the income method, is RMB889,770,500, representing an increase of RMB101,647,800 or an appreciation rate of 12.90% over the carrying amount of net assets of RMB788,122,700.

(III) Analysis of Discrepancy between the Results of the Cost Method and the Income Method

The value of shareholders’ equity interest calculated with the income method is RMB889,770,500, which is RMB34,472,600 higher than that of RMB855,297,900 calculated with the cost method, representing an appreciation rate of 4.03%.

XI. EXPLANATION OF SPECIAL ISSUE

(I) The valuation results determine the prevailing market value based on the purpose of this valuation with the assumption of ongoing usage in the open market. In the course of valuation, no allowance is made to any charge and guarantee that may be assumed in the future, any additional bid that may be resulted from special transaction patterns, any change on China’s macro-economic policy and other impact on asset prices caused by acts of god and other force majeure.

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(II) The entity to be valued is responsible for the accuracy and completeness of the scope of this valuation, and the data, statements and relevant information provided by it.
(III) Relevant title documents and relevant information involved in the valuation report are provided by the entity to be valued and the legal responsibility in relation to the accuracy and legality of these documents and information are assumed by the said entity.
(IV) According to Cai Shui [2008] No. 170, with effective from 1 January 2009, the input value-added tax incurred by general payers of value-added tax as a result of acquiring or manufacturing fixed assets has been eligible to be charged against the output value-added tax and excluded from the cost of fixed assets provided that the input value-added tax had been acknowledged. In this valuation, the replacement cost method is applied in the valuation of machinery equipment. With the implementation of new policies, the difference between the replacement costs of equipment purchased before and after 2009 is more significant. Given the fact that the transferor is able receive consideration to compensate its incurred cost to a certain extent, equipment purchased before and after 2009 is clear cut in this valuation. Accordingly, users of the report shall be noted that the value-added tax is included in the purchase price of equipment purchased before 2009.
(V) Significant Events that may Affect the Valuation Results:
This valuation results is based on the assumption that Southwest Branch of PetroChina Company Limited obtains valid mining licenses for the gas field in Data, Lichang Town, Yibin County, Sichuan Province, and enters into a valid and long term co-operative mining agreement with Huayou for the exploration of natural gas within the designated scope. If this assumption is not materialised in the future operation period for any reason, it will have significant impact on the valuation results.
The valuation results is based on the controlled gas reserve of 8 billion cubic meters in the sand-gas reserve shallow seam in the gas field in Data, Lichang Town, Yibin County, Sichuan Province, with the remaining recoverable reserve of 3.589 billion cubic meters, which has been approved by the State Reserve Committee.
- If the remaining recoverable reserve in this block is not approved by the State Reserve Committee or is different from the results approved by the State Reserve Committee, it will have significant impact on the valuation results.
The valuation results is based on the assumption that the mining activities in Baima gas field in Qionglai City, Xinjin County and Pujiang County in the south western part of Sichuan Province are granted by the long term and effective “Entrustment Letter on Construction Work” provided by Southwest Branch of PetroChina Company Limited; and that the exploration of natural

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

gas is conducted in the approved operation area. If the assumption is not materialised subsequently for any reason, it will have significant impact on the valuation results.

(VI) The revenues and the relevant costs used in this valuation are the professional judgments made by the valuation firm after conducting due diligence, which is based on the historical data provided by the entity to be valued. The reasonableness of the judgments made by the valuation firm will affect the valuation results to a certain extent.
(VII)The valuers have not conducted any technical test to all equipment in respect of their technology parameters and performance as at the valuation date in this valuation, and have only made judgments through on-site inspections on the assumption that the related technical information and the track records provided by the entity to be valued are true and valid.
(VIII)The valuer have not made any technical test to the underground construction work and the interior structure (which are not directly visible) of the buildings in this valuation, and have only made judgments through on-site inspections without using any testing equipment on the assumption that the related work information provided by valued entity are true and valid.
(IX) The shareholding of Shuangliu Huayou Natural Gas Co., Ltd. at its establishment was owned as to 80% and 20% by Huayou and respectively. Pursuant to the shareholder’s resolution dated January 2001, it was confirmed that the shareholding of Shuangliu Huayou Natural Gas Co., Ltd. was adjusted to 71.3% for Huayou and 28.7% for . However, procedures for this change in shareholding has not registered with the related industrial and commercial administrative authority because the industrial and commercial registration of had been withdrawn. This valuation is based on the fact that 71.3% of the shareholding is held by Huayou, which may have an impact on the value of Huayou’s shareholding in Shuangliu Huayou Natural Gas Co., Ltd..
(X) This valuation involves 22 long term investment units, and the entities to be valued include wholly-owned subsidiaries, non wholly-owned subsidiaries and associated companies. In determining the appraisal value of the long term equity investment in each entity to be valued, the valuer only considers normal factors which may have impact on the valuation results and no allowance is made to discounts arising from the premium of the controlling shareholding and the minority interests.

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APPENDIX II

(XI) Other Significant Events that may Affect the Valuation Results
The following properties of subsidiaries of Huayou are not registered for property ownership certificates:

Table 7-2 Particulars of Buildings and Structures without Certificates

			Gross
Serial		Month and Year	Floor Area	Original		Name of
No.	Name of Building	of Completion	/ Volume	Value	Net Value	Subsidiary
1	Workshop Premise	December 1994	159.14	134,964.00	71,824.12	Shuangliu
						Huayou
2	Administration	December 1995	91.14	132,086.00	65,239.28	Shuangliu
	Premise					Huayou
3	New Office Building	December 2001	86.4	169,000.00	114,931.80	Shuangliu
						Huayou
4	Office Extension	March 2008	59.52	172,000.00	159,816.64	Shuangliu
						Huayou
5	Compressor Room	December 2003	37.62	75,113.00	57,103.88	Shuangliu
						Huayou
6	Lavatory in Chengren	December 2002	20	33,437.64	24,242.56	Public
	Station					Transportation
						Compressed
						Natural Gas
7	New Compressor	April 2006	154.8	56,000.00	46,813.00	Public
	Room in Chaojue					Transportation
	Station					Compressed
						Natural Gas
8	Station House in	December 2006	250	219,900.00	191,459.68	Public
	Chaojue Station					Transportation
						Compressed
						Natural Gas
9	Shroff Office /	March 2009	38	120,000.00	115,151	Public
	Lavatory					Transportation
						Compressed
						Natural Gas
10	Office Building	December 2005	498.8	661,272.00	586,438.08	Dayi Huayou
11	Power Distribution	December 2005	43.2	169,221.20	139,127.84	Dayi Huayou
	Room
12	Warehouse	August 2001	43.2	327,757.23	159,932.23	Dayi Huayou
13	Office Building	June 2007	634	371,807.00	332,736.28	Neijiang
						Huayou
14	Machinery Room	June 2007	334	391,092.00	349,994.83	Neijiang
						Huayou
15	Dehydrating Room	August 2005	243	481,916.21	313,656.69	Huaqi Dachang
16	Compressor Room	August 2005	300	617,476.43	401,875.11	Huaqi Dachang

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ASSET VALUATION REPORT OF HUAYOU GROUP

			Gross
Serial		Month and Year	Floor Area	Original		Name of
No.	Name of Building	of Completion	/ Volume	Value	Net Value	Subsidiary
17	Sound-proof	December 2004	208	677,494.40	557,013.16	Zibo Huayou
	Compressor Room
18	Factory at Daolang	December 2006	354	700,000.00	609,466.63	Tai’an Huaqi
	Terminus
19	House in 4# Gas	May 2007	234.6	185,208.13	164,997.30	Tai’an Huaqi
	Refilling
	Sub-station
20	Factory at Tianping	December 2006	199.92	125,949.60	80,985.60	Tai’an Huaqi
	Terminus
21	Compressor Room	December 2007	288	840,420.18	769,574.74	Hebei Huaqi
22	Gas Refilling Station	December 2007	535	487,250.45	459,584.93	Hebei Huaqi
	Building
23	Mail Room	December 2007	29	27,611.96	26,279.14	Hebei Huaqi
24	Compressor Room	December 2005	887.00	615,123.00	500,719.43	Jingyang Huaqi
25	Terminus House and	October 2006	667.00	1,838,866.90	1,591,631.31	Jingyang Huaqi
	Guardroom in the
	Terminus
26	Material Warehouse	July 2008	92.80	35,600.00	33,585.63	Jingyang Huaqi
	and Pantry in the
	Terminus

The gross floor area and structural parameter of buildings and structures are data from on-site measurements implemented by the entity to be valued and the valuation team. The above basic data is not confirmed by local competent authority for the real estates industry and discrepancies may exist accordingly. The entity to be valued has provided evidence to prove its title to those buildings and structures, stating that those properties are free of dispute over the legal title. The valuation is based on the assumption that the above assets are accepted as the assets of the entity to be valued. The entity has been requested to solve the above issues as soon as possible. Where the entity has obtained the “Building Ownership Certificate” after the valuation date and there are discrepancies between the area stated in the certificate and the reported area, the former shall prevail. No allowance is made to the deduction of costs required for the application of property ownership certificates in the valuation results.

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

After checking the status, the following fixed assets of the subsidiaries are absent, obsolete or dismantled, which have not been dealt with in the account:

Table 7-3 List of Absent and Obsolescent Equipment

Serial			First Day of	Original			Name of
No.	Name	Quantity	Use	Value	Net Value	Remarks	Subsidiary
1	Compressor	3	June 1999	685,246.85	78,085.48	Obsolete and	Shuangliu
						absent	Huayou
2	Power	1	December 1995	53,114.42	−	Absent	Shuangliu
	Distribution						Huayou
	Equipment
3	High-voltage	1	December 1995	229,068.67	116,621.07	Absent	Shuangliu
	Transmission						Huayou
	Line
4	Exposed	1	December 1995	8,500.00	3,340.08	Absent	Shuangliu
	Communication						Huayou
	Line
5	High-voltage	1	December 2001	22,000.00	13,798.88	Absent	Shuangliu
	Cable						Huayou
6	Cooler	1	December 2001	10,600.00	4,538.56	Absent	Shuangliu
							Huayou
7	Safety Valve	1	June 2005	3,500.00	2,307.96	Absent	Shuangliu
							Huayou
8	Office	1	1999	13,810.00	−	Absent	Shuangliu
	Equipment						Huayou
9	Air	1	1999	5,700.00	−	Absent	Shuangliu
	Conditioner						Huayou
10	Note Counter	1	March 2006	1,800.00	956.10	Obsolete	Shuangliu
							Huayou
11	Gas Pipeline		December 1995	36,495.38	−	Dismantled	Shuangliu
							Huayou
12	Compressor	1	December 2000	2,818,979.38	1,542,270.08	Obsolete	Public Transport
							Compressed
							Natural Gas
13	Compressor	1	December 2001	427,135.29	263,281.01	Obsolete	Public Transport
							Compressed
							Natural Gas
14	Gas Dispenser	1	December 2001	363,733.46	228,119.00	Obsolete	Public Transport
							Compressed
							Natural Gas
15	Gas Dispenser	1	September 2002	250,000.00	118,383.83	Obsolete	Public Transport
							Compressed
							Natural Gas
16	Lenovo	2	March 2008	12,200.00	8,847.09	Loss on	Dayi Huayou
	Notebook					Disposal of
	Computer					Inventory
17	Gas storage	6	June 1995	120,045.00	120,045.00	Obsolete	Neijiang Huayou
	well
19	Gas storage	12m3	June 2008	966,202.81	810,319.93	Obsolete	Hebei Huayou
	well

– 130 –

ASSET VALUATION REPORT OF HUAYOU GROUP

APPENDIX II

Other Special Events

(1) Chengdu Public Transport Compressed Natural Gas Co., Ltd.

Other intangible assets in the company’s account are the operation rights of CNG gas refilling station acquired. Three operation rights indices were acquired from (Public Transport Dafu Travel and Transportation Co.), (Chengdu Public Transport Tianye Compressed Natural Gas Co., Ltd.) and (Chengdu Public Transport Guangming Gas Development Co., Ltd.) in 2005. However, construction of new stations have not started since the year of acquisition due to limitation of factors including urban planning, land acquisition price and gas resources index. The terms of the three indices are all 40 years starting from April 2001 and expiring in April 2041. The intangible assets in connection with the aforesaid indices have not been amortised by the company. In addition, for the three operation rights of self-owned gas refilling stations of

(Chengdu Public Transport Compressed Natural Gas Co., Ltd.), the usage fees of operation rights of Chengren Station and Shiyang Station were RMB400,000 and RMB400,000 respectively, of which RMB100,000 and RMB200,000 were paid respectively, as per the amounts stated in the “Notice on Acceptance of Bid for CNG Gas Refilling Station in Chengdu City” as at acquisition of the operation rights. No payment has been made thereafter nor has notice for further payment of the balance been received. The amount was amortised (Chengdu Public Transport Compressed Natural Gas Co., Ltd.) according to the actual amounts paid. Nevertheless, it is still uncertain as to the payment of the balance. In the course of valuation, the appraisal value is determined according to the balance after amortisation over an ordinary amortisation period.

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ASSET VALUATION REPORT OF HUAYOU GROUP

APPENDIX II

(2) (Neijiang Huayou Public Transport Compressed Gas Co., Ltd.)

Details of the designated title owners of the land use right certificate that have not completed the transfer procedures as at the valuation date are as follows:

Table 7-4

			Nature of		Designated
	Name of Land	Designated	Land Use	Term of Land	Area of Land
Certificate No.	Parcel	Title Owner	Right	Use Right	(M2)
Nei Shi Guo	Warehouse	China Natural	Transfer	2004.02.02 to	4,176.00
Yong (2004)	Land	Gas Co., Ltd.		2020.11.30
Zi No. 10068
Nei Shi Guo	Commercial	Neijiang Yuntai	Transfer	2007.11.19 to	2,066.20
Yong (2007)	Land	Transportation		2045.01.09
No. 011066		Co., Ltd.

Furthermore, the carrying amount of the construction in progress of (Neijiang Huaqi Public Transport Compressed Natural Gas Co., Ltd.) is RMB1,116,132.47. The project started in 2007, and mainly involves in the construction of houses and dismantling and relocating of ancillary facilities, including pipelines and equipments, incurred in the relocation of original gas stations. Dismantling has been completed as at valuation date. 20 sets of machinery and equipment have been dismantled from the original gas stations and have been idled since then. Applications for the construction of new stations are being filed with relevant authorities and are subject to approval by government departments. The carrying cost of the company is equivalent to the dismantling and relocating fees. The appraisal value is determined to be zero.

(3) (Ordos City Huaqi Xinsheng Gas Co., Ltd.)

The premise for operation was acquired as a result of urban planning requirement. According to the urban planning authority, the relocation was required to be commenced in early August. As at the end of August, Huaqi Xinsheng stored all removable equipment in Beifang Zhongyou Liuzhouyan Gas Refilling Station and the building and civil structures were cleared. Business has been suspended since then.

(4) (Baotou Huaqi New Energy Development Co., Ltd.)

All the designated title owners of the licences of the 18 trucks under the fixed assets are (Baotou City Guangyuan Gas Engineering Co., Ltd.). Besides, licences of three motor vehicles (Model: Charade) are not provided. Explanation on the title ownership has been given (Baotou Huaqi

– 132 –

APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

New Energy Development Co., Ltd.) in this regard. The fixed assets of the company (buildings and structures) are stated as the construction fee of each gas refilling station, including certain buildings (station houses), which have not registered for property ownership certificates, with a measured area of 257.9 m2.

(5)

(Zibo Huayou Natural Gas Co., Ltd.)

The land parcel where the building is located is subject to tenancy agreements. A sound-proof compressor room is erected thereon. There are two lessors, including (Pipeline Zhongyuan Gas Transmission Branch of PetroChina Company Limited) who has leased a site with an area of 4,064 metres square at the north of Zibo Station at No. 21 Minxiang Road, Zhangdian Advanced Technology District, Zibo City to Zibo Huayou for a term commencing from 29 October 2004 and expiring on 18 October 2024; upon expiry, Zibo is required to remove its properties thereon; and (Zibo Lubo Gas Co., Ltd.) who has leased a site with an area of 2,288.2 metres square at No. 19 Minxiang Road, Advanced Technology District, Zibo City to Zibo Huayou for occupancy for a term of 10 years commencing from 3 November 2004 and expiring on 3 November 2014; upon expiry, Zibo is required to remove its properties thereon. Possibility of contract renewal is still uncertain.

On the book of Zibo Huayou, there are 2 semi-trailers for transporting high-pressure gases with car owners named (Zibo Junchi Gas Co., Ltd.) in the licences. After investigation, it is mainly for convenient operation that the licences have been registered (Zibo Junchi Gas Co., Ltd.) as the owner. Zibo Huayou and (Zibo Junchi Gas Co., Ltd.) have entered into a vehicle affiliation agreement stipulating that the title ownerships of the vehicle belong to Zibo Huayou. The company has given explanation and undertook that there is no dispute over the title ownership. The valuation is on the basis that the above assets are accepted as the assets of the company. The company has been requested to solve the above issues as soon as possible.

(6) (Tai’an Zhongyou Huaqi Natural Gas Co., Ltd.)

In the account of Tai’an, there are 6 semi-trailers for transporting high-pressure gases without registered names in the relevant licences and the purchaser as stated in the purchase invoice is (Tai’an Taishan Ganghua Gas Co., Ltd.). After investigation, it was mainly for convenient operation at the initial stage of its business that the vehicles are purchased under the name of (Tai’an Taishan Ganghua Gas Co., Ltd.). However, the payment for the vehicles was made by Tai’an Zhonghua Huaqi. Due to internal management and the fact that it is not popular in Shandong Province to process vehicle licences of road

– 133 –

APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

trains, the transfer of title ownership has not be made in time. The company has given explanation and undertook that there is no dispute over the title ownership.

The long term capital investment (Tai’an Zhongyou Huaqi Natural Gas Co., Ltd.) is (Laiwu Zhongyou Huaqi Natural Gas Co., Ltd.), a company incorporated in November 2005 with limited liability by (Tai’an Zhongyou Huaqi Natural Gas Co., Ltd.) and a natural person Song Wenhong with a registered capital of RMB6,000,000 and owned as to 70% by Tai’an Zhongyou Huaqi with Song Wenhong as the general manager. (Laiwu Zhongyou Huaqi Natural Gas Co., Ltd.) started operation in September 2006. Until February 2007, it was decided to transfer the equity interest (Laiwu Zhongyou Huaqi Natural Gas Co., Ltd.) held by Tai’an Zhongyou Huaqi to Huayou according to the asset clearing request from (Zhongyou Shenzhen) and Huayou. The proposal for the transfer of equity interest was passed at a general meeting held in June 2007. Afterwards, a shareholder named Song Wenhong refused to proceed with the transfer with a number of excuses so that changes in shareholding could not be confirmed for a long time. On 18 March 2008, 21 March 2008 and 24 March 2008, announcements in relation to the dismissal of Song Wenhong as the general manager of Wulai Co. and the suspension of the use of the common seal and licence of the company were published by Tai’an Zhongyou Huaqi on Laiwu Daily. As at the valuation date, the case has been referred to legal procedures by Tai’an Zhongyou Huaqi. Given the fact mentioned above, (Laiwu Zhongyou Huaqi Natural Gas Co., Ltd.) has not provided any information in this valuation accordingly while Tai’an Zhongyou Huaqi has provided information it possessed on a best effort basis. The financial data was an estimation as a result.

Part of the land parcels occupied by (Tai’an Zhongyou Huaqi Natural Gas Co., Ltd.) as gas refilling stations are leased land with terms from 1 September 2006 to 1 September 2022, from 10 October 2006 to 9 October 2026, from 1 January 2005 to 31 December 2024 and from 24 November 2004 to 24 November 2024 respectively and a land parcel that can be used free of charge with an uncertain expiry date.

(7) (Jingyang Huaqi Anran Compressed Natural Gas Co., Ltd.)

The intangible assets in the account, being the land parcel with an area of 22,484.80 metres squares as stated in the land use right, is located in Yongle Town, Jingyang County. The land was for industrial purpose and was acquired in 2005. A premium of RMB1,386,000.00 has been paid. As the company is unable to meet the business requirement for a total investment of RMB50,000,000 upon acquiring the land, the local government has not issued the land use right certificate and may recover the land.

– 134 –

ASSET VALUATION REPORT OF HUAYOU GROUP

APPENDIX II

(XII) Significant Events Subsequent to the Valuation Date of the Report

Where the quantity of assets and the basis of consideration change within the valid period after the valuation date, the following principles shall apply: (1) where there is any change in the quantity of assets, the value of assets shall be adjusted correspondingly according to the original valuation methods; (2) where there is any change in the basis of assets valuation and where the change constitutes significant impact on the results of assets valuation, the principal shall promptly engage a qualified valuation firm for revaluation; and (3) where there is any change in the quantity of assets and the basis of assets valuation subsequent to the valuation date, the principal shall take these factors into account when quoting the actual consideration of assets, and corresponding adjustments shall be made accordingly.

XII. EXPLANATION OF LIMITATION ON THE USE OF VALUATION REPORT

(I) The precedent conditions for the effectiveness of the valuation report is that the economic activities of the proposed acquisition of equity interests in Huayou by CNPC (Hong Kong) Ltd. complies with relevant requirements of regulations of China and is approved by relevant authorities.

It is the legal responsibility of the valuer and the valuation firm to make professional judgments on the value of assets according to the valuation purpose as stated in this report. However, no judgment on any economic activity corresponding to the valuation purpose is given by the valuer or the valuation firm. The valuation, to a great extent, relies on the related information provided by the principal and the entity to be valued. Accordingly, the valuation is on the basis that documents relating to economic activity and assets ownership, certificates, accounting documents and other relevant legal documents provided by the principal and the entity to be valued are true and lawful.

(II) The precedent condition for the effectiveness of the valuation report is that the assets to be valued are used on a continuous basis.
(III) The effective period of the valuation results is one year, i.e. from 31 August 2009 to 30 August 2010. Where the purpose of this valuation is realized within one year from the valuation date, the valuation results may be used as a reference in determining the consideration of the realised economic activity corresponding to the valuation purpose. After one year, the valuation results will cease to be valid, and the assets shall be revalued to serve the original purpose.
(IV) This valuation results shall only be used by the principal and its competent authorities for the examination of the valuation report, or used by competent regulatory authorities for the examination of the work of the valuation firm. The valuation report is for the exclusive use of the principal and the whole and part of its content shall not be distributed and disclosed to any other unit or individual, nor be published in public media without the consent of the principal.

XIII. DATE OF VALUATION REPORT

The date of this valuation report is 30 October 2009.

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APPENDIX II ASSET VALUATION REPORT OF HUAYOU GROUP

(No text in this page)

China United Assets Appraisal Co., Ltd.

Legal Representative: Shen Qi

Registered Certified Asset Valuer: Ju Jianan

Registered Certified Asset Valuer: Mo Shaoxia

30 October 2009

– 136 –

VALUATION REPORT ON THE PROPERTY INTERESTS OF XINJIANG XINJIE

APPENDIX III

The following is the text of a letter, summary of values and valuation certificates, prepared for the purpose of incorporation in this circular received from BMI Appraisals Limited, an independent valuer, in connection with its valuations as at 31 October 2009 of the properties to be disposed of by the Group located in the People’s Republic of China.

==> picture [291 x 98] intentionally omitted <==

13 January 2010

The Directors CNPC (Hong Kong) Limited Rooms 3907-3910, 39[th] Floor Yat Chau International Plaza No. 118 Connaught Road West Sheung Wan, Hong Kong

Dear Sirs,

INSTRUCTIONS

We refer to the instructions from CNPC (Hong Kong) Limited (the “Company”) for us to value the properties to be disposed of by the Company and / or its subsidiaries (hereinafter referred to as the “Group”) located in the People’s Republic of China (the “PRC”). We confirm that we have conducted inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market values of the properties as at 31 October 2009 (the “date of valuation”).

BASIS OF VALUATION

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VALUATION REPORT ON THE PROPERTY INTERESTS OF XINJIANG XINJIE

APPENDIX III

VALUATION METHODOLOGIES

In valuing Property Nos. 1 – 3, 5, 6 and 9, due to the inherent nature of usage and lack of market sales comparables, the properties have been valued by the Depreciated Replacement Cost Approach. Depreciated replacement cost is defined as “the aggregate amount of the value of the land for the existing use or a notional replacement site in the same locality, and the new replacement cost of the buildings and other site works, from which appropriate deductions may then be made to allow for the age, condition, economic and functional obsolescence and environmental factors etc; all of these might result in the existing property being worth less to the undertaking in occupation than would a new replacement.” This basis has been used due to the lack of an established market upon which to base comparable transactions. However this approach generally furnishes the most reliable indication of value for assets without a known used market.

For Property Nos. 4, 7 and 8, we cannot attribute any commercial values to the properties due to the absence of relevant title documents.

TITLE INVESTIGATION

We have been provided with copies of title documents and have been advised by the Group that no further relevant documents have been produced. However, we have not examined the original documents to verify ownership or to ascertain the existence of any amendment documents, which may not appear on the copies handed to us. In the course of our valuations, we have relied upon the advice and information given by the Group and its PRC legal adviser, Kaiwen Law Firm ( ), regarding the titles of the properties. All documents have been used for reference only.

In valuing Property Nos. 1-3, 5, 6 and 9 in the PRC, we have relied on the advice given by the Group and its PRC legal adviser that the Group has valid and enforceable titles to the properties which are freely transferable, and has free and uninterrupted rights to use the same, for the whole of the unexpired terms granted subject to the payment of annual government rent / land use fees and all requisite land premium / purchase consideration payable have been fully settled.

VALUATION ASSUMPTIONS

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VALUATION REPORT ON THE PROPERTY INTERESTS OF XINJIANG XINJIE

APPENDIX III

VALUATION CONSIDERATIONS

In the course of our valuations, we have relied to a considerable extent on the information given by the Group and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenures, particulars of occupancy, site / floor areas, completion dates of the buildings, identification of the properties and other relevant information.

We have not carried out detailed on-site measurements to verify the correctness of the site / floor areas in respect of the properties but have assumed that the site / floor areas shown on the documents handed to us are correct.

We have no reason to doubt the truth and accuracy of the information provided to us by the Group and we have relied on your advice that no material facts have been omitted from the information so supplied. We consider that we have been provided with sufficient information for us to reach an informed view.

No allowance has been made in our valuations for any charges, mortgages or amounts owing on the properties or for any expenses or taxation, which may be incurred in effecting a sale or purchase.

Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature, which could affect their values.

Our valuations have been prepared in accordance with the HKIS Valuation Standards on Properties (First Edition 2005) published by the Hong Kong Institute of Surveyors.

– 139 –

VALUATION REPORT ON THE PROPERTY INTERESTS OF XINJIANG XINJIE

APPENDIX III

REMARKS

We hereby certify that we neither have any present nor any prospective interest in the Group or PetroChina Northwestern Sales Branch and PetroChina Western Pipeline Branch. (i.e. the “Purchasers”) or the appraised properties or the values reported.

Unless otherwise stated, all money amounts stated herein are in Renminbi (RMB) and no allowances have been made for any exchange transfer.

Our summary of values and the valuation certificates are attached herewith.

Yours faithfully, For and on behalf of BMI APPRAISALS LIMITED

Dr. Tony C.H. Cheng Joannau W.F. Chan BSc, MUD, MBA (Finance), MSc (Eng), PhD (Econ), BSc. MSc. MRICS MHKIS RPS(GP) MHKIS, MCIArb, AFA, SIFM, FCIM, Senior Director MASCE, MIET, MIEEE, MASME, MIIE Managing Director

Notes:

– 140 –

VALUATION REPORT ON THE PROPERTY INTERESTS OF XINJIANG XINJIE

APPENDIX III

SUMMARY OF VALUES

Properties held by the Group for owner-occupation

==> picture [426 x 435] intentionally omitted <==

----- Start of picture text -----

||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Market|Value|Interest|Value|attributable|
|in|existing|state|attributable|to|the|Group|
|No.|Property|as|at|31|October|2009|to|the|Group|as|at|31|October|2009|
|RMB|RMB|
|1.|Land,|various|buildings|6,800,000|97.26%|6,613,680|
|and|structures|in|
|Wangjiagou|Oil|Depot,|
|Toutunhe|District,|
|Urumuqi|City,|
|Xinjiang|Uyghur|
|Autonomous|Region,|
|The|PRC|
|2.|Land,|various|buildings|110,000|97.26%|106,986|
|and|structures|in|
|706|Pump|Station,|
|Ershilidian|Town,|
|Hutubi|County,|
|Xinjiang|Uyghur|
|Autonomous|Region,|
|The|PRC|
|3.|Land,|various|buildings|8,500,000|97.26%|8,267,100|
|and|structures|in|
|705|Pump|Station,|
|Dafeng|Town,|
|Hutubi|County,|
|Xinjiang|Uyghur|
|Autonomous|Region,|
|The|PRC|

----- End of picture text -----

– 141 –

VALUATION REPORT ON THE PROPERTY INTERESTS OF XINJIANG XINJIE

APPENDIX III

==> picture [426 x 570] intentionally omitted <==

----- Start of picture text -----

||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Market|Value|Interest|Value|attributable|
|in|existing|state|attributable|to|the|Group|
|No.|Property|as|at|31|October|2009|to|the|Group|as|at|31|October|2009|
|RMB|RMB|
|4.|Land,|various|buildings|No|Commercial|Value|97.26%|Nil|
|and|structures|in|
|704|Pump|Station,|
|Shawan|County,|
|Xinjiang|Uyghur|
|Autonomous|Region,|
|The|PRC|
|5.|Land,|various|buildings|5,900,000|97.26%|5,738,340|
|and|structures|in|
|703|Pump|Station,|
|Opposite|of|
|121|[st]|Regiment,|
|South|of|Huke|Highway,|
|Xinjiang|Uyghur|
|Autonomous|Region,|
|The|PRC|
|6.|Land|and|various|32,000|97.26%|31,123|
|structures|located|at|
|Paotai|County,|
|121|[st]|Regiment,|
|8|[th]|Agriculture|Division,|
|Xinjiang|Uyghur|
|Autonomous|Region,|
|The|PRC|
|7.|Land,|various|buildings|No|Commercial|Value|97.26%|Nil|
|and|structures|in|
|Kalamay|Refined|Oil|
|Initial|Station,|Kalamay|
|City,|
|Xinjiang|Uyghur|
|Autonomous|Region,|
|The|PRC|

----- End of picture text -----

==> picture [96 x 40] intentionally omitted <==

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VALUATION REPORT ON THE PROPERTY INTERESTS OF XINJIANG XINJIE

APPENDIX III

No. Property Market Value in existing state as at 31 October 2009 Interest attributable to the Group a RMB 8. Land, various buildings and structures in Dushanzi Refined Oil Initial Station, Dushanzi District, Kalamay City, Xinjiang Uyghur Autonomous Region, The PRC No Commercial Value 97.26% 9. Land, various buildings and structures in Beijiang Network Duwu Intermediate Station, Hongliutang Village, Dafeng Town, Hutubi County, Xinjiang Uyghur Autonomous Region, The PRC 2,800,000 97.26% Total: 24,142,000	Value attributable to the Group s at 31 October 2009 RMB Nil 2,723,280 23,480,509	Value attributable to the Group s at 31 October 2009 RMB Nil 2,723,280 23,480,509
		23,480,509

– 143 –

VALUATION REPORT ON THE PROPERTY INTERESTS OF XINJIANG XINJIE

APPENDIX III

VALUATION CERTIFICATE

Properties held by the Group for owner-occupation

						Market Value
					Particulars of	in existing state
	Property			Description and tenure	occupancy	as at 31 October 2009
						RMB
1.	Land, various buildings The property comprises a				As advised by the	6,800,000
	and	structures in		parcel of land with a site area	Group, the property
	Wangjiagou Oil Depot, of approximately 52,358 sq.m.				was occupied by the	(97.26% interest
	Toutunhe		District,	(or about 563,581.51 sq.ft.)	Group for	attributable to
	Urumuqi City,			upon which various buildings	petrochemical	the Group:
	Xinjiang Uyghur			and structures for	operation as at the
	Autonomous Region, petrochemical operation,				date of valuation.	RMB6,613,680)
	The PRC			completed in about 1996, were
				erected.		(Please see Note 3 below)

The total gross floor area (“GFA”) of the property with relevant title documents is approximately 1,081.80 sq.m. (or about 11,644.50 sq.ft.).

The land use rights of the property have been granted for a term expiring on 22 May 2051 for industrial use.

Notes: -

Pursuant to a State-owned Land Use Rights Certificate, Wu Guo Yong (2001) Zi Di No. 0004052 ( ) issued by Urumuqi City Land Administration Bureau ( ) dated 18 June 2001, the land use rights of the property with a site area of 52,358 sq.m.

have been granted to Xinjiang Xinjie Co., Ltd. (“Xinjiang Xinjie”) for a term expiring on 22 May 2051 for industrial use.

Pursuant to 6 Building Ownership Certificates, Wu Zheng Fang Zi (199) Di Nos. 0013349, 0013350, 0013352 to 0013355 ( 0013349, 0013350, 0013352 0013355 ) issued by Urumuqi City People’s Government all dated 6 March 1998, the property with a total GFA of 1,081.80 sq.m. is legally owned by for industrial and ancillary uses.
In arriving at our valuation, we cannot attribute any commercial value to the buildings and structures (other than those mentioned in Note 2) of the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate Yes Building Ownership Certificates Yes

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VALUATION REPORT ON THE PROPERTY INTERESTS OF XINJIANG XINJIE

APPENDIX III

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Xinjiang Xinjie is in possession of a proper legal title to the property;
b. The property is not subject to mortgage, attachment or any other material encumbrances;
c. The existing use of the property excluding the buildings and structures without relevant title documents is in compliance with relevant laws and regulations; and
d. The property excluding the buildings and structures without relevant title documents can be freely disposed of in the open market.
As advised by the Group, Xinjiang Xinjie is effectively owned as to 97.26% by the Company,

– 145 –

VALUATION REPORT ON THE PROPERTY INTERESTS OF XINJIANG XINJIE

APPENDIX III

VALUATION CERTIFICATE

==> picture [426 x 215] intentionally omitted <==

----- Start of picture text -----

||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Market|Value|
|Particulars|of|in|existing|state|
|Property|Description|and|tenure|occupancy|as|at|31|October|2009|
|RMB|
|2.|Land,|various|buildings|The|property|comprises|a|As|advised|by|the|110,000|
|and|structures|in|parcel|of|land|with|a|site|area|Group,|the|property|
|706|Pump|Station,|of|approximately|1,279.30|was|occupied|by|the|(97.26%|interest|
|Ershilidian|Town,|sq.m.|(or|about|13,770.39|Group|for|attributable|to|
|Hutubi|County,|sq.ft.)|upon|which|various|petrochemical|the|Group:|
|Xinjiang|Uyghur|buildings|and|structures|for|operation|as|at|the|
|Autonomous|Region,|petrochemical|operation,|date|of|valuation.|RMB106,986)|
|The|PRC|completed|in|about|2002,|were|
|erected.|(Please|see|
|Note|2|below)|
|The|land|use|rights|of|the|
|property|have|been|granted|for|
|a|term|expiring|on|17|
|November|2058|for|industrial|
|use.|

----- End of picture text -----

Notes: -

Pursuant to a State-owned Land Use Rights Certificate, Hu Guo Yong (2008) Zi Di No. 0730 ( ) issued by Hutubi County People’s Government ( ) dated 17 November 2008, the land use rights of the property with a site area of 1,279.30 have been granted to Xinjiang Xinjie for a term expiring on 17 November 2058 for industrial use.
In arriving at our valuation, we cannot attribute any commercial value to the buildings and structures of the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate Yes Building Ownership Certificate No

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Xinjiang Xinjie is in possession of a proper legal title to the property excluding the buildings and structures without relevant title documents;
b. The property is not subject to mortgage, attachment or any other material encumbrances;
c. The existing use of the property excluding the buildings and structures without relevant title documents is in compliance with relevant laws and regulations; and
d. The property excluding the buildings and structures without relevant title documents can be freely disposed of in the open market.
As advised by the Group, Xinjiang Xinjie is effectively owned as to 97.26% by the Company,

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VALUATION REPORT ON THE PROPERTY INTERESTS OF XINJIANG XINJIE

APPENDIX III

VALUATION CERTIFICATE

Description and tenure

Property

Land, various buildings The property comprises a and structures in parcel of land with a site area 705 Pump Station, of approximately 81,737.42 Dafeng Town, sq.m. (or about 879,821.59 Hutubi County, sq.ft.) upon which various Xinjiang Uyghur buildings and structures for Autonomous Region, petrochemical operation, The PRC completed in about 1996, were erected. The total gross floor area (“GFA”) of the property with relevant title documents is approximately 3,164.51 sq.m. (or about 34,062.79 sq.ft.).

Market Value Particulars of in existing state occupancy as at 31 October 2009 RMB As advised by the 8,500,000 Group, the property was occupied by the (97.26% interest Group for attributable to petrochemical the Group: operation as at the date of valuation. RMB8,267,100) (Please see Note 3 below)

The land use rights of the property have been granted for a term expiring on 23 November 2050 for industrial use.

Notes: -

Pursuant to a State-owned Land Use Rights Certificate, Hu Guo Yong (2001) Zi Di No. 790 ( ) issued by Hutubi County People’s Government ( ) dated 11 December 2001, the land use rights of the property with a site area of 81,737.42 sq.m. have been granted to Xinjiang Xinjie for a term expiring on 23 November 2050 for industrial use.
Pursuant to 12 Building Ownership Certificates, Hu Zi Di Nos. (99)001006 to (99)001017 ( (99)001006 (99)001017 ) issued by Hutubi County People’s Government all dated 25 October 1999, the property with a total GFA of 3,164.51 sq.m. is legally owned by Xinjiang Xinjie Petrochemical Co., Ltd. ( ) for industrial and ancillary uses.
In arriving at our valuation, we cannot attribute any commercial value to the buildings and structures (other than those mentioned in Note 2) of the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate Yes Building Ownership Certificates Yes

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VALUATION REPORT ON THE PROPERTY INTERESTS OF XINJIANG XINJIE

APPENDIX III

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Xinjiang Xinjie is in possession of a proper legal title to the property;
b. The property is not subject to mortgage, attachment or any other material encumbrances;
c. The existing use of the property excluding the buildings and structures without relevant title documents is in compliance with relevant laws and regulations; and
d. The property excluding the buildings and structures without relevant title documents can be freely disposed of in the open market.
As advised by the Group, Xinjiang Xinjie is effectively owned as to 97.26% by the Company,

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VALUATION REPORT ON THE PROPERTY INTERESTS OF XINJIANG XINJIE

APPENDIX III

VALUATION CERTIFICATE

Market Value Particulars of in existing state Property Description and tenure occupancy as at 31 October 2009 RMB 4. Land, various buildings As advised by the Group, the As advised by the No Commercial Value and structures in property comprises a parcel of Group, the property 704 Pump Station, land with a site area of was occupied by the (Please see Shawan County, approximately 18,000 sq.m. Group for Note 1 below) Xinjiang Uyghur (or about 193,752 sq.ft.) upon petrochemical Autonomous Region, which various buildings and operation as at the The PRC structures for petrochemical date of valuation. operation, completed in about 1990’s, were erected.

Notes: -

In arriving at our valuation, we cannot attribute any commercial value to the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate No Building Ownership Certificate No

The opinion of the PRC legal adviser to the Group states that the relevant title document has not been obtained and the property cannot be freely transferred in the open market;

– 149 –

VALUATION REPORT ON THE PROPERTY INTERESTS OF XINJIANG XINJIE

APPENDIX III

VALUATION CERTIFICATE

Description and tenure

Property

Land, various buildings The property comprises a and structures in parcel of land with a site area 703 Pump Station, of approximately 42,903 sq.m. Opposite of (or about 461,807.89 sq.ft.) 121[st] Regiment, upon which various buildings South of Huke Highway, and structures for Xinjiang Uyghur petrochemical operation, Autonomous Region, completed in about 1998, were The PRC erected. The total gross floor area (“GFA”) of the property with relevant title documents is approximately 3,127.47 sq.m. (or about 33,664.09 sq.ft.).

Market Value Particulars of in existing state occupancy as at 31 October 2009 RMB As advised by the 5,900,000 Group, the property was occupied by the (97.26% interest Group for attributable to petrochemical the Group: operation as at the date of valuation. RMB5,738,340) (Please see Note 3 below)

The land use rights of the property have been granted for a term expiring on 25 December 2051 for industrial use.

Notes: -

Pursuant to a State-owned Land Use Rights Certificate, Sha Guo Yong (2001) Zi Di No. 000002310 ( 000002310 ) issued by Shawan County People’s Government ( ) dated 25 December 2001, the land use rights of the property with a site area of 42,903 sq.m. have been granted to Xinjiang Xinjie for a term expiring on 25 November 2051 for industrial use.
Pursuant to 8 Building Ownership Certificates, Shawan County Fang Quan Zheng Sha Zheng Zi Di Nos. 00003833 to 00003840 ( 00003833 00003840 ) issued by Shawan County People’s Government, the property with a total GFA of 3,127.47 sq.m. is legally owned by Xinjiang Xinjie Petrochemical Co., Ltd. ( ) for industrial and ancillary uses.
In arriving at our valuation, we cannot attribute any commercial value to the buildings and structures (other than those mentioned in Note 2) of the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate Yes Building Ownership Certificates Yes

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VALUATION REPORT ON THE PROPERTY INTERESTS OF XINJIANG XINJIE

APPENDIX III

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Xinjiang Xinjie is in possession of a proper legal title to the property;
b. The property is not subject to mortgage, attachment or any other material encumbrances;
c. The existing use of the property excluding the buildings and structures without relevant title documents is in compliance with relevant laws and regulations; and
d. The property excluding the buildings and structures without relevant title documents can be freely disposed of in the open market.
As advised by the Group, Xinjiang Xinjie is effectively owned as to 97.26% by the Company,

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VALUATION REPORT ON THE PROPERTY INTERESTS OF XINJIANG XINJIE

APPENDIX III

VALUATION CERTIFICATE

==> picture [426 x 204] intentionally omitted <==

----- Start of picture text -----

||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Market|Value|
|Particulars|of|in|existing|state|
|Property|Description|and|tenure|occupancy|as|at|31|October|2009|
|RMB|
|6.|Land|and|various|The|property|comprises|a|As|advised|by|the|32,000|
|structures|located|at|parcel|of|land|with|a|site|area|Group,|the|property|
|Paotai|County,|of|approximately|382.50|sq.m.|was|occupied|by|the|(97.26%|interest|
|121|[st]|Regiment,|(or|about|4,117.23|sq.ft.)|upon|Group|for|attributable|to|
|8|[th]|Agriculture|Division,|which|various|buildings|and|petrochemical|the|Group:|
|Xinjiang|Uyghur|structures|for|petrochemical|operation|as|at|the|
|Autonomous|Region,|operation,|completed|in|about|date|of|valuation.|RMB31,123)|
|The|PRC|1998,|were|erected.|
|(Please|see|
|The|land|use|rights|of|the|Note|2|below)|
|property|have|been|granted|for|
|a|term|expiring|on|20|
|November|2058|for|industrial|
|use.|

----- End of picture text -----

Notes: -

Pursuant to a State-owned Land Use Rights Certificate, Shi Guo Yong (2008 Chu) Zi Di No. 121006 ( 121006 ) issued by Xinjiang Manufacturing & Construction Corps ( ) dated 4 December 2008, the land use rights of the property with a site area of 382.50 sq. m. have been granted to Xinjiang Xinjie for a term expiring on 20 November 2058 for industrial use.
In arriving at our valuation, we cannot attribute any commercial value to the buildings and structures of the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate Yes Building Ownership Certificate No

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Xinjiang Xinjie is in possession of a proper legal title to the property excluding the buildings and structures without relevant title documents;
b. The property is not subject to mortgage, attachment or any other material encumbrances;
c. The existing use of the property excluding the buildings and structures without relevant title documents is in compliance with relevant laws and regulations; and
d. The property excluding the buildings and structures without relevant title documents can be freely disposed of in the open market.
As advised by the Group, Xinjiang Xinjie is effectively owned as to 97.26% by the Company,

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VALUATION REPORT ON THE PROPERTY INTERESTS OF XINJIANG XINJIE

APPENDIX III

VALUATION CERTIFICATE

Property Description and tenure

Land, various buildings The property comprises a and structures in parcel of land with a site area Kalamay Refined Oil of approximately 21,265.3 Initial Station, sq.m. (or about 228,899.69 Kalamay City, sq.ft.) upon which various Xinjiang Uyghur buildings and structures for Autonomous Region, petrochemical operation, The PRC completed in about 1990’s, were erected.

Market Value Particulars of in existing state occupancy as at 31 October 2009 RMB As advised by the No Commercial Value Group, the property was occupied by the (Please see Group for Note 2 below) petrochemical operation as at the date of valuation.

==> picture [96 x 41] intentionally omitted <==

Notes: -

Pursuant to an Authorised Operation Land Use Rights Leasing Contract ( ) entered between Xinjiang Petroleum Administration Bureau ( ) and

Xinjiang Xinjie Petrochemical Co., Ltd. ( ) on 22 December 2000, the land use rights of the property with a site area of 21,265.3 sq.m. was leased to the latter for a term of 20 years expiring on 1 August 2020.

In arriving at our valuation, we cannot attribute any commercial value to the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate No Building Ownership Certificates No

The opinion of the PRC legal adviser to the Group states that the relevant title document has not been obtained and the property cannot be freely transferred in the open market;
As advised by the Group, Xinjiang Xinjie Petrochemical Co., Ltd. is effectively owned as to 97.26% by the Company,

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VALUATION REPORT ON THE PROPERTY INTERESTS OF XINJIANG XINJIE

APPENDIX III

VALUATION CERTIFICATE

Description and tenure

Property

Land, various buildings The property comprises a and structures in parcel of land with a site area Dushanzi Refined Oil of approximately 1,950 sq.m. Initial Station, (or about 20,989.80 sq.ft.) Dushanzi District, upon which various buildings Kalamay City, and structures for Xinjiang Uyghur petrochemical operation, Autonomous Region, completed in about 1990’s, The PRC were erected.

==> picture [96 x 41] intentionally omitted <==

Notes: -

Pursuant to an Authorised Operation Land Use Rights Leasing Contract ( ) entered between Xinjiang Petroleum Administration Bureau ( ) and

Xinjiang Xinjie Petrochemical Co., Ltd. ( ) on 22 December 2000, the land use rights of the property with a site area of 1,950 sq.m. was leased to the latter for a term of 20 years expiring on 1 August 2020.

In arriving at our valuation, we cannot attribute any commercial value to the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate No Building Ownership Certificates No

The opinion of the PRC legal adviser to the Group states that the relevant title document has not been obtained and the property cannot be freely transferred in the open market;
As advised by the Group, Xinjiang Xinjie Petrochemical Co., Ltd. is effectively owned as to 97.26% by the Company,

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VALUATION REPORT ON THE PROPERTY INTERESTS OF XINJIANG XINJIE

APPENDIX III

VALUATION CERTIFICATE

Market Value
Particulars of in existing state
Property Description and tenure occupancy as at 31 October 2009 RMB
1. Land, various buildings The property comprises a As advised by the 2,800,000 and structures in Beijiang parcel of land with a site area Group, the property Network Duwu of approximately 33,334 sq.m. was occupied by the (97.26% interest Intermediate Station, (or about 358,807.18 sq.ft.) Group for attributable to Hongliutang Village, upon which various buildings petrochemical the Group: Dafeng Town, and structures for operation as at the Hutubi County, petrochemical operation, date of valuation. RMB2,723,280) Xinjiang Uyghur completed in about 1990’s, Autonomous Region, were erected. (Please see The PRC Note 2 below) The land use rights of the property have been granted for a term expiring on 17 November 2058 for industrial use.

Notes: -

Pursuant to a State-owned Land Use Rights Certificate, Hu Guo Yong (2008) Zi Di No. 0731 ( ) issued by Hutubi County People’s Government dated 17 November 2008, the land use rights of the property with a site area of 33,334 sq. m. have been granted to Xinjiang Xinjie for a term expiring on 17 November 2058 for industrial use.
In arriving at our valuation, we cannot attribute any commercial value to the buildings and structures of the property without relevant title documents as at the date of valuation.
The status of title and grant of major approvals and licenses in accordance with the information provided by the Group is as follows:–

State-owned Land Use Rights Certificate Yes Building Ownership Certificate No

Yes

The opinion of the PRC legal adviser to the Group contains, inter alia, the following:
a. Xinjiang Xinjie is in possession of a proper legal title to the property excluding the buildings and structures without relevant title documents;
b. The property is not subject to mortgage, attachment or any other material encumbrances;
c. The existing use of the property excluding the buildings and structures without relevant title documents is in compliance with relevant laws and regulations; and
d. The property excluding the buildings and structures without relevant title documents can be freely disposed of in the open market.
As advised by the Group, Xinjiang Xinjie is effectively owned as to 97.26% by the Company,

– 155 –

ASSET VALUATION REPORT OF XINJIE OIL ASSETS

APPENDIX IV

The following is the English translation of the Assets Valuation Report prepared by China United Assets Appraisal Co., Ltd., an independent valuer, in connection with the valuation of Xinjie Oil Assets as at 31 December 2008 prepared for the purpose of inclusion in this circular.

ASSETS TRANSFER PROJECT OF XINJIANG XINJIE CO., LTD ASSETS VALUATION REPORT ZHONG LIAN PING BAO ZI [2009] NO. 120

To: Xinjiang Xinjie Co., Ltd.

China United Assets Appraisal Co., Ltd. is engaged by the Company to conduct a valuation on the assets proposed to be transferred by Xinjiang Xinjie Co., Ltd. (hereinafter referred to as “Xinjiang Xinjie”) in accordance with stipulations on assets valuation of China and the generally accepted assets valuation methods under the principles of independent, objective and scientific and the relevant economic principles, including the principle of changes in property rights and the principle of substitution. The valuation team implemented on-site inspections, market surveys and evidence confirmation to the assets under valuation in accordance with the necessary assets valuation procedures to reflect the fair value of the assets and liabilities of the assets under valuation as at 31 December 2008. The assets valuation and the valuation results are detailed as follows:

I. INTRODUCTION TO PRINCIPAL AND ASSETS OWNER

Xinjiang Xinjie Co., Ltd. is the principal and assets owner under this project.

(I) Introduction to the Company

Company Name:

Xinjiang Xinjie Co., Ltd. (hereinafter referred to as the “Company”)

Registered Address of No. 36, Zuanshicheng Road, High-tech Development Company: Zone, Urumqi, Xinjiang

Type of Enterprise: a company limited by shares (a joint venture formed by parties from Taiwan, Hong Kong, Macau and China)

Authorised Representative: Wang Zengling Registration Number of 650000410000464 Business Licence:

Registered Capital: RMB200,011,400

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ASSET VALUATION REPORT OF XINJIE OIL ASSETS

APPENDIX IV

(II) Nature and History of the Company

Xinjiang Xinjie, established on 17 August 1995, is one of the enterprises selected by Xinjiang Petroleum Administration Bureau to undergo the pilot market reform. In May 2001, with the re-designation of staff members of the former Xinjiang Petroleum Administration Bureau, the Company converted into a limited company with a registered capital of RMB100,000,000. Consequently, profits were converted to capital for three times and the share capital increased to RMB200,011,400 as a result. , a wholly-owned subsidiary of the Xinjiang Petroleum Administration Bureau, held 43.84% interests in Xinjiang Xinjie while the remaining 44.76% was held by Xinjiang Petroleum Administration Bureau. With the reorganisation and division of (China National Petroleum Corporation) in 1999, the 44.76% interests previously held by Xinjiang Petroleum Administration Bureau were transferred to PetroChina Company Limited (hereinafter referred to as “PetroChina”). PetroChina entrusted Xinjiang Oilfield Company (November 1999 to October 2001) and (October 2001 to November 2004) to manage its shareholdings respectively. The original shareholders of Xinjiang Xinjie were as follows:

Particulars of Shareholder

Parti	ul	ars of Shareho	lder		_Unit: RMB _	’0,000
				Investment	Percentage of
Name	of Shareholder			Amount	Shareholding	Note
					(%)
PetroChina				8,952.51 8,768.50	44.76 43.84
Xinjiang		Tongyu Co., Ltd.		548.03	2.74
(			)	866.05	4.33
Xinjiang		Tongyuan Co., Ltd.
(			)	866.05	4.33

In September 2008, shareholders of the Company changed as CNPC (Hong Kong) Limited completed the acquisition of shares in Xinjiang Xinjie held by PetroChina, , Xinjiang Tongyu Co., Ltd. and Xinjiang Tongyuan Co., Ltd. PetroChina became the new substantial shareholder of the Company accordingly. As at the valuation date, shareholdings of the Company were as follows:

Particulars of Shareholder


Particulars of Shareholder		_Unit: RMB _	’0,000
	Investment	Percentage of
Name of Shareholder	Amount	Shareholding	Note
		(%)
CNPC (Hong Kong) Limited	19,453.11	97.26
	548.03	2.74

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ASSET VALUATION REPORT OF XINJIE OIL ASSETS

APPENDIX IV

(III) Scope of Business and Key Operating Results

Principal scope of business: pipeline transportation of refined oil and natural gas; development of natural gas application technology; production of drag reducing agent; development, promotion and application of polyamide resin

(IV) Other User of the Valuation Report

The users of this valuation report shall be the principal, the assets owner and relevant administrative authorities governing economic activities covered by this report.

Unless otherwise provided in laws and regulations of China, any institution or individual without authorisation from the valuation firm and the principal shall not be an user of this valuation report solely by virtue of its access to which.

II. PURPOSE OF VALUATION

Due to the business consolidation of the Company by PetroChina, Xinjiang Xinjie intends to transfer its refined oil pipeline transportation assets and refined oil storage assets to external parties. Such economic activity has been approved by relevant authorities.

The purpose of this valuation is to reflect the market value of the assets to be transferred by Xinjiang Xinjie as at the valuation date for the purpose of providing a pricing reference for the assets to be transferred.

III. SCOPE AND SUBJECT OF VALUATION

The valuation subjects are the refined oil pipeline transportation assets and the refined oil storage assets proposed to be transferred by Xinjiang Xinjie with a total book value of RMB511,739,241.14. Those assets include fixed assets of RMB447,927,686.77, construction in progress of RMB24,129,444.33, engineering materials of RMB34,715,252.22 and intangible assets of RMB4,966,857.82.

The above scope and subject of valuation are consistence with those to be valued.

IV. TYPE OF VALUE AND DEFINITION

Based on the purpose of this valuation, it is confirmed that a market value will be concluded hereunder.

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ASSET VALUATION REPORT OF XINJIE OIL ASSETS

APPENDIX IV

V. VALUATION DATE

The date of this valuation is 31 December 2008.

The valuation date is determined by the principal, Xinjiang Xinjie.

VI. ASSUMPTION AND LIMITATION OF VALUATION

The valuation team is subject to the following assumptions in this valuation:

1. Assumption of Going Concern

2. Assumption of Trading

3. Assumption of Open Market

It is an assumption that both parties of the transaction of assets traded or to be traded in the market rank pari passu and have been provided with sufficient opportunities and time to acquire market information for the purpose of making rational judgments on the function, use and transacted price of the assets. The assumption of an open market is on the basis that assets can be traded in the open market.

VII. BASIS OF VALUATION

(I) Principal Basis of Laws

“Provisional Regulations on the Supervision and Administration of State-owned Assets of Enterprises” (Decree No. 378 of the State Council, 2003);
“Administration Measures on Appraisal of State-owned Assets” (Decree No. 91 of the State Council, 1991);
“Provisional Measures on the Administration of Transfer of State-owned Property of Enterprises” (Decree No. 3 of the State-owned Assets Supervision and Administration Commission and the Ministry of Finance of the State Council);

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ASSET VALUATION REPORT OF XINJIE OIL ASSETS

APPENDIX IV

“Provisional Measures on the Administration of Appraisal of State-owned Property of Enterprises” (Decree No. 12 of the Stated-owned Assets Supervision and Administration Commission of the State Council, 25 August 2005);
“Notice of Related Issues in Strengthening Administration on State-owned Assets Appraisal” (Guo Zi Wei Chan Quan [2006] No. 274);
“Opinions of the Ministry of Finance with regard to the Reform of Administrative Methods of State-owned Assets Appraisal and the Strengthening of Supervision and Administration of Assets Appraisal” (Guo Ban Fa [2001] No. 102, 2001);
“Principles for Assets Appraisal – Basic Principles” (Cai Qi (2004) No. 20);
“Ethical Norms for Assets Appraisal – Basic Norms” (Cai Qi (2004) No. 20);
“Regulatory Opinions on Operations of Assets Appraisal (Trial)” (promulgated by the China Appraisal Society on 7 May 1996);
“Guidance to Entitlement of Valuation Object for Certified Assets Appraisers” (the Chinese Institute of Certified Public Accountants, 2003);
“Principles for Assets Appraisal – Appraisal Report” (Zhong Ping Xie [2007] No. 189);
“Principles for Assets Appraisal – Appraisal Procedure” (Zhong Ping Xie [2007] No. 189);
“Principles for Assets Appraisal – Machine and Equipment” (Zhong Ping Xie [2007] No. 189);
“Principles for Assets Appraisal – Real Estate” (Zhong Ping Xie [2007] No. 189);
“Guidance on Price Model of Assets Appraisal” (Zhong Ping Xie [2007] No. 189).

(II) Document of Economic Activity

The resolution of the second meeting of the third plenum of board of directors of Xinjiang Xinjie.

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ASSET VALUATION REPORT OF XINJIE OIL ASSETS

APPENDIX IV

(III) Title Document

state-owned land use rights certificates, land grant contracts and building ownership certificates;
licences of motor vehicles;
contracts and evidential documents for acquisition of major assets;
other reference material.

(IV) Standard Reference for Pricing

Investment Benchmark for Long-haul Pipeline Projects (the Planning Department of PetroChina, 2006);
Estimation Benchmark for Oil Construction and Installation Projects (PetroChina, December 2001);
Investment Benchmark for Oil Construction Projects (the Oil Project Pricing Administration Center of PetroChina, September 2001);
General Quotation List for Entities in Urumqi Region (Volume I and V) (Standard Budget Charge for Installation Projects in China, 2004);
Pricing Estimation of Material with Quota in Urumqi Region (Standard Budget Charge for Installation Projects in China, 2004);
General Quotation List for Entities in Urumqi Region (Volume II, VII and X) (Standard Budget Charge for Installation Projects in China, 2004);
General Quotation List for Entities in Urumqi Region (Volume VIII, IX and XI) (Standard Budget Charge for Installation Projects in China, 2004);
General Quotation List for Entities in Urumqi Region, Book I (Supplementary Budget Charge for Xinjiang Uygur Autonomous Region under the Standard Basic Charge for Construction Projects in China, 2004);

– 161 –

ASSET VALUATION REPORT OF XINJIE OIL ASSETS

APPENDIX IV

General Quotation List for Entities in Urumqi Region, Book II (Supplementary Budget Charge for Xinjiang Uygur Autonomous Region under the Standard Basic Charge for Construction Projects in China, 2004);
General Quotation List for Entities in Urumqi Region (Volume III, IV and VI) (Standard Budget Charge for Installation Projects in China, 2004);
General Quotation List for Xinjiang Oilfield Construction and Installation Entities (Volume I) under the Budget Charge for Oil Construction and Installation Projects (the Budget Center of Xinjiang Oilfield Company, June 2001);
General Quotation List for Xinjiang Oilfield Construction and Installation Entities (Volume III and IV) under the Budget Charge for Oil Construction and Installation Projects (the Budget Center of Xinjiang Oilfield Company, June 2001);
General Quotation List for Xinjiang Oilfield Construction and Installation Entities (Volume V) under the Budget Charge for Oil Construction and Installation Projects (the Budget Center of Xinjiang Oilfield Company, June 2001);
Guidance Price of Material for Xinjiang Oil Construction Projects (I) (the Project Pricing and Budget Department of Xinjiang Oilfield Company, July 2003);
Guidance Price of Material for Xinjiang Oil Construction Projects (II) (the Project Pricing and Budget Department of Xinjiang Oilfield Company, September 2003);
Guidance Price of Material for Xinjiang Oil Construction Projects (the Project Pricing and Budget Department of Xinjiang Oilfield Company, July 2005);
Charge of Construction and Installation Projects in Xinjiang Uygur Autonomous Region (the Planning Committee of Xinjiang Uygur Autonomous Region, March 1998);
Charge of Construction and Installation Projects in Xinjiang Uygur Autonomous Region (the General Office for Project Pricing Administration of Xinjiang Uygur Autonomous Region, 2004);
General Quotation List for Xinjiang Oilfield Construction and Installation Entities (Budget Charge for Oil Construction and Installation Projects (Volume II) – Mass Transportation and Specialised Pipeline Installation Projects) (Budget and Settlement Center of Xinjiang Oilfield Company, June 2001);
Reference Price List for Rental Charge of Construction Machinery in Xinjiang in 2003 (Rules for the Pricing of Standard Rental Charge of Construction Machinery in China) (the General Office for Project Pricing Administration of Xinjiang Uygur Autonomous Region, July 2003);

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ASSET VALUATION REPORT OF XINJIE OIL ASSETS

APPENDIX IV

General Quotation List for Urumqi Region, Book I (Supplementary Budget Charge for Xinjiang Uygur Autonomous Region under the Standard Basic Charge for Construction Projects in China) (the Planning Committee of Xinjiang Uygur Autonomous Region, 1998);
General Quotation List for Urumqi Region, Book II (Supplementary Budget Charge for Xinjiang Uygur Autonomous Region under the Standard Basic Charge for Construction Projects in China) (the Planning Committee of Xinjiang Uygur Autonomous Region, 1998);
recent pricing data of comparable enterprises and purchase contracts of major equipment;
lending rates as at the valuation date and the prevailing interest rate;
the producer price index of each industry as set out in the “China Statistical Yearbook” (the National Bureau of Statistics of China);
other information.

(V) Major Reference

relevant planning for project completion and information in connection with budgeting and final accounts;
“Handbook for Common Data and Parameter in Assets Appraisal (Addition);
other information.

VIII.VALUATION METHOD

Assets within the scope of this valuation are those proposed to be transferred by Xinjiang Xinjie. Based on the purpose of this valuation, the valuation results of assets to be valued shall be the open market value under the ongoing basis. The cost approach is mainly used in this valuation.

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The valuation methods for various categories of assets are as follows:

1. Building and Construction

The cost method is adopted in the valuation of buildings and structures. In cost method, based on the construction project information and completion settlement information, and with reference to the quantity of construction works, the current quota standard, infrastructure expenses and capital costs are used to calculate the full price of replacement of the constructions. The residue ratio is ascertained from the useful life and the on-site inspection of the constructions to calculate the net appraisal value of the constructions.

Appraisal values of buildings and constructions (structures) = full price of replacement x residue ratio

As to other buildings and constructions (structures), based on an on-site inspection, the unit price of replacement is determined through the benchmarking method by taking into account all valuation factors. The unit price of replacement is then used to compute the net appraisal value.

A. Full Price of Replacement

The full price of replacement is composed of three components, namely construction and installation prices, preliminary and other expenses, capital costs.

a. Determination of Construction and Installation Price

The replacement accounting method is used to assess and compute in the valuation of constructions. The price of construction and installation projects includes the total prices of civil work projects, decoration projects, water supply and drainage, electricity and gas, fire prevention and other projects of ancillary information systems. The forecast (final) adjustment method is used to compute the prices of civil work and decoration projects. During the on-site inspection, the valuation team applies the “General Quotation List for Entities in Urumqi Region” in 2004, the “Charge of Construction and Installation Projects in Xinjiang Uygur Autonomous Region” in 2004, the “Pricing Information of Construction Projects in Urumqi” in the fourth quarter of 2008 and the “Pricing Information of Construction Projects in Kelamayi” in the fourth quarter of 2008 in the calculation of prices of civil work projects and the installation projects of water supply and drainage, electricity and gas. Construction expenses and preliminary and other expenses paid by construction companies are calculated pursuant to relevant regulations of the local governments of the areas where the assets are located.

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b. Determination of Preliminary and Other Expense

Preliminary and Other Fees of Construction Projects

Serial

Serial
No.	Expense Item	Calculation Basis	Rate	Basis for Expense
1	Management fee of	Construction Price x Rate	1.50%	Cai Jian [2002] No. 394
	Construction Company
2	Prospection and Design Fee	Construction Price x Rate	3.37%	Ji Jia Ge [2002] No. 10
3	Project Supervision Fee	Construction Price x Rate	2.00%	Fa Gai Jia Ge [2007] No.670
4	Project Quality Control Fee	Construction Price x Rate	0.08%	Xin Ji Jia Fang [2002] No. 316
5	Agency Fee for Tender	Construction Price x Rate	0.70%	Ji Jia Ge [2002] No. 1980
6	Environment Assessment Fee	Construction Price x Rate	0.60%	Ji Jia Ge [2002] No. 125
7	Special Fund for Wall	GFAx Rate	4	Xin Cai Fei Shui [2008] No. 17
	Material
8	Special Fund for Bulk	GFAx Rate	3	Cai Zong [2002] No. 23
	Cement

c. Determination of Capital Cost

Capital costs are the interests on loans attributable to the injected capital incurred for the construction period. The applicable interest rate is based on the standard rate fixed by the People’s Bank of China as at the valuation date. The construction period is based on the normal work cycles for construction works assuming that the capital will be equally injected:

Capital costs = (price of construction and installation projects + preliminary and other expenses) x reasonable construction periods x loan rate x 50%

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APPENDIX IV

B. Residue Ratio

The residue ratio for buildings and constructions under this valuation is determined by a combination of the on-site prospection residue ratio and the theoretical residue ratio. The applicable comprehensive residue ratio is further computed through the weighted average method with a proportion of 6:4 for the on-site residue ratio and the theoretical residue ratio respectively. In particular:

Prospection residue ratio N1: upon on-site inspections of each construction (structure), the valuation team rates the on-site prospection residue ratio of each construction separately by taking the foundation, loaded structural parts (beam, panel, pillar), wall, floor, exterior part, door, window, wall finishing, suspended ceiling, water supply and drainage, ventilation, electricity and lighting of each construction (structure) into account with reference to the status under usage and repair and maintenance conditions of which and according to the “Rating Scale of Grade of Integrity or Damage of Buildings”, the “Basis of Reference for Identifying the Degree of Ageing of Buildings” and “Scoring Scale and Correction Coefficient of Residue Ratio of Buildings” announced by the former Urban and Rural Environmental Construction and Protection Department.

Theoretic residue ratio N2: calculated according to the useful economic life and the useful life consumed of buildings.

Theoretic residue ratio N2 = (1 – useful life consumed / useful economic life) x 100%

Based on the results of the above calculation methods, the applicable residue ratio is further computed through the weighted average method.

Residue ratio N = prospection residue ratio N1 x 60% + theoretic residue ratio N2 x 40%

2. Assets under Equipment Category

According to the features of the assets to be valued as well as the purpose of this valuation, the replacement cost method (general budget adjustment method) is adopted for the valuation.

Appraised value = full price of replacement x residue ratio

(1) Determination of Full Price of Replacement

1) Full Price of Replacement of Oil Pipeline

Full price of replacement = cost of construction and installation projects + preliminary expenses + capital costs

Costs of construction and installation projects include the value of civil work projects (including those related to passing over rivers, ditches, roads and railways) and pipe laying projects.

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APPENDIX IV ASSET VALUATION REPORT OF XINJIE OIL ASSETS

Other fees for construction projects include management fees of construction companies, prospection and design fees, project supervision fees, project quality control fees, agency fees for tender, environment assessment fees and trial operation fees, which are charged at the rates of 1.50%, 3.37%, 2.00%, 0.08%, 0.70%, 0.60% and 0.75% of the construction cost respectively, totaling 9%. After taking the actual features of the equipment into consideration, the above fees are based on the charging basis of other fees of construction projects in the area where the equipment to be valued is located.

In addition, with respect to buildings and constructions under valuation, the applicable rates of the special fund for wall material and the special fund for bulk cement are RMB4 and RMB3 per square meter respectively.

Capital costs are calculated basing on a reasonable construction period during with the capital is equally injected without taking the effect of compound interests into account, and the prevailing lending rate fixed by financial institutions as at the valuation date.
2) Full Price of Replacement of Machinery Equipment

The full price of replacement of machinery equipment includes the purchase price (including tax) of equipment and the transportation and miscellaneous fees, installation and commissioning fees, other fees for construction works and capital costs necessary to bring such equipment to a status suitable for operation; whereas:

Full price of replacement = purchase price + transportation and miscellaneous fees + installation and commissioning fees + other fees + capital costs

Determination of Equipment Purchase Price

It is determined mainly by making enquiries to manufacturers or distributors, or referring to “Mechanical and Electrical Products Quotation Manual 2008” and other pricing information and recent contractual prices (including tax) of comparable equipment.

The purchase price of imported equipment consists of the prices of goods (CIF (cost, insurance and freight)) and incidental costs of imported equipment. The incidental costs include import tariffs, value added tax, handling charges on foreign trade and financial charges of banks.

Transportation and Miscellaneous Fee

Transportation and miscellaneous fees are based on the purchase price (including tax) and are charged according to different rates of transportation and miscellaneous fees. The calculation of which also depends on actual locations and specific status of equipment as well as the transportation distance and difficulties, with reference to the list of transportation and miscellaneous fees of domestic equipment.

With respect to ordinary equipment to be delivered by manufacturers or suppliers or that involving lower transportation fees due to easy delivery, transportation and miscellaneous fees are ignored in case of replacement.

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� Installation and Commissioning Fee

According to the features of equipment and the weight and the difficulty in installing equipment, installation and commissioning fees are based on the purchase price (including tax) with variable rates with reference to standard equipment installation charges for the mechanical industry.

As to small-sized equipment, equipment needs no installation or equipment for which installation and commissioning works are provided by suppliers, installation and commissioning fees are ignored in case of replacement.

� Other Fee

Other fees for construction projects include management fees of construction companies, prospection and design fees, project supervision fees, project quality control fees, agency fees for tender, environment assessment fees and trial operation fees, which are charged at the rates of 1.50%, 3.37%, 2.00%, 0.08%, 0.70%, 0.60% and 0.75% of the construction cost respectively, totaling 9%. After taking the actual features of the equipment into consideration, the above fees are based on the charging basis of other fees of construction projects in the area where the equipment to be valued is located.

Capital costs are the same as above.

3) Full Price of Replacement of Transportation Vehicle

The full price of replacement of transportation vehicles is based on the purchase price (including tax) of vehicles, purchase tax and handling charges for new vehicle registration; whereas:

Full price of replacement = prevailing purchase price (including tax) + vehicle purchase tax + handling charges for new vehicle registration

� Purchase Price

The purchase price of vehicles to be valued is based on online enquiries and recent market pricing information from (Information Advertisement from Heima) and (Hui Cong Vehicle Information) with reference to the local market price of the latest transactions of vehicles of the same class.

� Vehicle Purchase Tax

Pursuant to provisions of “Provisional Regulations on the Vehicle Purchase Tax of the People’s Republic of China” (Decree No. 294 of the State Council, 2001), tax payable for vehicle purchase = assessable price x 10%. Due to the fact that “assessable price of the vehicle for the taxpayer’s personal use will exclude value-added tax”, therefore:

Purchase surtax = purchase price (including tax) � (1+17%) x 10%.

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APPENDIX IV

Handling Charge for New Vehicle Registration

The charge is calculated according to provisions of local traffic administration authorities.

As to vehicles manufactured long ago, where no similar model is available in the market, the full price of replacement is based on the price of vehicles with comparable functions.

4) Full Price of Replacement of Electronic Equipment

The price of electronic equipment as at the valuation date is based on local market information and recent market price information from (Hui Cong Business Information). As to electronic equipment with free transportation, installation and commissioning services provided by manufacturers or vendors, its full price of replacement is equal to the purchase price.

As to electronic equipment manufactured long ago, where no similar model is available in the market, the full price of replacement is assessed through the market approach under which the price is directly determined with reference the transaction price in the secondary market.

(2) Determination of Residue Ratio

1) Residue Ratio of Machinery Equipment (or Pipeline)

As to the residue ratio of equipment (or pipelines) with higher value, the straight line method and the on-site prospection method are adopted to compute the theoretical residue ratio N1 and the prospection residue ratio N2 respectively, which will then be weighted and summed up to determine the residue ratio N; whereas:

N = N1 x 40% + N2 x 60%

Where N1 = (1 – useful life actually consumed / useful economic life) x 100%

The prospection residue ratio of equipment (or pipelines) is calculated by classifying the equipment (or pipelines) into several components (or categories) by functions for separate assessment; that is, the on-site prospection residue ratio of each component (or each category of equipment) will be summed up according to its respective weight to the equipment (or pipelines) by its function (or value) for calculating the prospection residue ratio of equipment (or pipelines) as a whole.

As to ordinary equipment with lower value, the residue ratio is determined through the straight line method.

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APPENDIX IV

2) Residue Ratio of Motor Vehicle

As to transportation vehicles, pursuant to provisions of the “Notice on the Issue of Obsolescence Standards on Motor Vehicle” (Guo Jing Mao Jing [1997] No.456) and the “Notice on the Amendments to Obsolescence Standards on Motor Vehicle” (Guo Jing Mao Zi Yuan [2000] No. 1202) dated 18 December 2000, the residue ratio calculated using the straight line method or that using the mileage method (at the lower) shall be selected as the theoretical residue ratio; whereas:

Useful life residue ratio = (1 – useful life consumed / designated useful life) x 100%

Mileage residue ratio = (1 – mileage traveled / designated mileage) x 100%

Residue ratio = Min (useful life residue ratio or mileage residue ratio)

Meanwhile, prospections and assessments are necessary for vehicles to be valued. Where the result of prospections and assessments greatly differs from the residue ratios calculated according to the above methods, proper adjustments shall be made to determine the final residue ratio. Where they are similar, no adjustment is necessary.

3) Residue Ratio of Electronic Equipment

The residue ratio of electronic equipment is determined using the straight line method.

Residue ratio = (1 – useful life consumed � useful economic life) x 100%; or

Residue ratio = remaining useful life � (useful life consumed + remaining useful life) x 100%

As to electronic equipment valued through the market approach whereby the appraisal value is determined directly basing on the secondary market price, no residue ratio is calculated.

(3) Determination of Appraised Value

Appraisal value = full price of replacement x residue ratio

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APPENDIX IV

3. Construction in Progress – Construction in Progress (Equipment Installation)

Construction in progress (civil works) includes Mahe Crossing Project and Liumaowan Pipeline Relocation Project. After verification, Phase II of Duwu Pipeline Project was set up and commenced construction in 2006 and was taken over by China Petroleum West Pipeline Company in 2007 pursuant to a reply from (China National Petroleum Corporation). The project was continued by China Petroleum West Pipeline Company accordingly. Due to the early commencement of the above project, the construction expenditure validated plus the capital cost shall be the appraisal thereof. As to other projects, the carrying amount validated shall be the appraisal value given the relatively short elapsed time since the commencement of which.

4. Construction in Progress – Construction in Progress (Equipment Installation)

Construction in progress (equipment installation) includes D219 project for increasing transportation capacity, pigging works for section 703 and the monitoring system modification project.

After verification, the adjusted carrying amounts of the pigging works for section 703 and the monitoring system modification project represents the equipment purchase prices, installation fees and technical service fees, reflecting the purchase and construction costs as at the valuation date basically. Hence, the adjusted carrying amount is taken as the appraisal value. The construction in progress (equipment installation) considered in the valuation of pipeline equipment is assessed at zero.

5. Engineering Material

Engineering materials are equipment and materials used for laying the pipelines.

Most of the equipment and materials are customised with relatively stable prices, and the carrying amount with reasonable mix can be accurately measured. As a result, the adjusted carrying amount is taken as the appraisal value.

6. Intangible Assets – Land Use Right

Based on the on-site prospection by the valuation team and pursuant to provisions of “Valuation Procedures of Land in Urban and Town Area”, taking the location of assets to be valued, nature of land use, conditions of use and local land market conditions into account, this valuation mainly adopts the following methods:

Since recent land appropriation cases are available in the region where the assets to be valued are located, the land acquisition cost and relevant taxes and fees can be taken as reference. As a result, the cost method is adopted for assessment.

The land to be valued is founded in an area to which the county basis land price is applicable, and the basis land price coefficient correction method can be used in the valuation accordingly.

Finally, the property market conditions in the area where such land plot is located as well as other factors are analysed for the sake of determining the land price.

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1) Cost Method

The cost method is a valuation method which calculates the land price mainly according to the sum of various fees incurred in the land development as well as a certain level of profits, interests, taxes payable and capital gains of land. The philosophy is to compute the land price by taking into account all the investment in the land, including land acquisition costs and development costs of infrastructure (the “basic costs”), and the corresponding interests and profits from the commitment of the basic costs, which is calculated as per the investment rationale stating that investment shall generate gain of the equal amount (whereas the basic costs and the corresponding interests and profits constitute the basic components of the land price), plus the gains attributable to land use rights with reference to the need of economic realisation of the land ownership of China. The formula is as follow:

V = Ea + Ed + T + R1 + R2 + R3 = VE + R3

whereas:

V – land price

Ea – land acquisition cost

Ed – land development cost

T – tax
R1 – interest
R2 – profit

R3 – capital gain of land

VE – land price at cost

The following formula is applied in this valuation:

V = (VE + R3) x k1 x (1 + k2)

k1 – tenure correction coefficient

k2 – correction coefficient for individual factor

2) Basis Land Price Coefficient Correction Method

According to the basis land price coefficient correction method, the assessment results, including towns and cities basis land prices and basis land price correction coefficients, are used to compare the area conditions and individual conditions of the land to be valued with the average conditions of the said area according to the principle of substitution, whereas the basis land price is adjusted by applying a corresponding correction coefficient selected from the correction coefficient table, for the sake of calculating the land price of the valuation subject as at the valuation date.

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APPENDIX IV

3) Method for Determining Land Price

Upon the on-site inspection and with the analysis of the local property market conditions, the valuation team carries out the valuation through the cost method and the land price coefficient correction method according to the basic principles and valuation procedures of land price valuation. Results of both methods are similar. Hence, 50% weight is allocated to each method for determining the final valuation results.

IX. IMPLEMENTATION AND PROCEDURE OF VALUATION

The entire valuation is conducted in four stages:

(I) Preparation

In January 2009, we reached an agreement through negotiations with the principal in respect of the purpose for this valuation, the valuation date and the scope of valuation, and prepared an assets valuation working plan.
On 10 February 2009, the valuation team visited the site to have a general understanding of assets to be valued, assist the entity in reporting assets to be valued. Our staff also collected documents and information required for assets valuation according to the operational standard for assets valuation, guidance opinions on appraisal of corporate value and the actual need of valuation procedures.

(II) On-site Valuation

The valuation team implemented the on-site valuation from 10 February 2009 to 20 February 2009, which was mainly involved in following activities:

listened to the general introduction to the entity and the history and current status of assets to be valued made by the relevant staff from the principal and the assets owner, getting to know more about the technical status of fixed assets to be valued;
verified and identified the assets declaration list provided by the entity, verified data in relevant financial records of the entity and worked with the entity to make adjustments for discovered problems;
conducted an overall check-up and validation to fixed assets as stated in the assets declaration list according to the requirements of valuation standards, and checked intangible assets generally;
inspected and collected documentary evidence of title rights of assets to be valued;
determined a specific valuation method for each type of assets to be valued with reference to the actual status and features of which;
made preliminary valuation estimation for assets within the valuation scope after checking and verifying relevant information.

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APPENDIX IV

(III) Compilation of Valuation

We analysed and summarised the preliminary results during the period between 21 February 2008 and 28 February 2008 for the adjustment, modification and perfection of the valuation results. We also modified and amended the report repeatedly according to our internal triple check system and procedures specially designed for assets valuation reports.

(IV) Submission of Report

X. VALUATION CONCLUSION

We performed statutory and necessary procedures of assets valuation based on relevant laws, rules and regulations on assets valuation and valuation standards of China with the principle of being independent, fair, scientific and objective. We valued the assets proposed to be transferred by Xinjiang Xinjie and reached the valuation conclusion on those assets as at the valuation date, being 31 December 2008:

The carrying amount of assets is RMB511,739,300, the adjusted carrying amount is RMB511,739,300, the appraisal value is RMB645,505,300 and the valuation surplus is RMB133,766,000. The appreciation rate is 26.14%. Detailed results are as follows:

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APPENDIX IV

ASSET VALUATION REPORT OF XINJIE OIL ASSETS

Summary of Results of Assets Valuation

Assets Owner: Xinjiang Xinjie Co., Ltd Valuation Date: 31 December 2008 Unit: RMB’0,000

			Adjusted
		Carrying	Carrying	Appraisal	Change in	Appreciation
Item		Amount	Amount	Value	Value	Rate (%)
						E = D / B x
		A	B	C	D = C – B	100%
Current Assets	1	–	–	–	–
Long Term
Investment	2	–	–	–	–
Fixed Assets	3	50,677.24	50,677.24	61,014.55	10,337.31	20.40
Of which:
Construction in
Progress	4	2,412.94	2,412.94	2,083.75	–329.19	–13.64
Buildings	5	3,839.37	3,839.37	4,107.06	267.69	6.97
Equipment	6	40,953.40	40,953.40	51,352.21	10,398.81	25.39
Land	7	–	–	–	–
Intangible Assets	8	496.69	496.69	3,535.98	3,039.29	611.91
Of which:
Land Use Rights	9	496.69	496.69	3,535.98	3,039.29	611.91
Other Assets	10	–	–	–	–
Total Assets	11	51,173.93	51,173.93	64,550.53	13,376.60	26.14
Current Liabilities	12	–	–	–	–
Non-current
Liabilities	13	–	–	–	–
Total Liabilities	14	–	–	–	–
Net Assets	15	51,173.93	51,173.93	64,550.53	13,376.60	26.14

XI. EXPLANATION ON SPECIAL ISSUE

The property right owner as shown in the licence of one vehicle within the valuation scope is inconsistent with the name of the assets user. The cost related to property rights rectification is not considered in this valuation.
In September 2005, Xinjiang Xinjie pledged its assets in respect of a borrowing of RMB15,000,000 from Bank of Communications, Urumqi Branch by Jietong Oil Company. Such assets included eight buildings with property ownership certificates of Sha Wan Xian Fang Chan Zheng Sha Zheng Zi No. 00003833 to No. 00003840 with an area of 3,127.44 square meters and a piece of land with an area of 42,903 square meters located at Station 703 along the Kelamayi-Urumqi long-haul transportation line, for which the certificate of pledging rights was processed for an agreed term of three years. Such pledge has not been released as at the date of the valuation report.
Where the quantity of assets and the basis of consideration change within the valid period after the valuation date, the following principles shall apply:
(1) where there is any change in the quantity of assets, the value of assets shall be adjusted correspondingly according to the original valuation methods;

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APPENDIX IV ASSET VALUATION REPORT OF XINJIE OIL ASSETS

(2) where there is any change in the basis of assets valuation and where the change constitutes significant impact on the valuation results of assets, the principal shall promptly engage a qualified assets valuation firm for revaluation;
(3) where there is any change in the quantity of assets and the basis of assets valuation subsequent to the valuation date, the principal shall take these factors into account when quoting the actual consideration of assets, and corresponding adjustments shall be made accordingly.

XII. LIMITATION ON THE USE OF VALUATION REPORT

The precedent conditions for the effectiveness of the valuation report is that the economic activities of the assets transfer is approved by relevant authorities as required by statutory procedures.
The conditions for the effectiveness of the valuation report is that assets within the valuation scope are all based on the assumption stated in section 6 of the valuation report. The valuation, to a great extent, relies on the related information provided by the assets owner. Accordingly, the valuation is on the basis that ownership documents of relevant assets, certificates, accounting documents and statements and other relevant legal documents are true and lawful.
It is the legal responsibility of the valuer and the valuation firm to make professional judgments on the value of shareholdings of all the company shareholders stated in the section headed “Purpose of Valuation” in this report. However, no judgment on any economic activity corresponding to the purpose of the valuation is given by the valuer or the valuation firm.
According to relevant provisions currently in effect, the effective period of the valuation conclusion of this report is one year starting from the valuation date, i.e. from 31 December 2008 to 30 December 2009. Where the purpose of this valuation is realised within one year after the valuation date, the valuation results may be used as a reference in determining the consideration of the realised economic activity corresponding to the valuation purpose. After one year, the valuation results will cease to be valid, and the assets shall be revalued to serve the original purpose.
This valuation conclusion shall only be used by the principal and its competent authorities and shall be filed with competent assets appraisal authorities for examination. The valuation report is for the exclusive use of the principal and the whole and part of its content shall not be distributed and disclosed to any other unit or individual, nor be published in public media without the consent of the principal.

XIII.DATE OF VALUATION REPORT

The date of this valuation report is 20 April 2009.

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APPENDIX IV

(No text on this page)

China United Assets Appraisal Co., Ltd.

Legal Representative of the Valuation Firm: Shen Qi

Registered Certified Assets Valuer: Chen Zhihong

Registered Certified Assets Valuer: Liu Bin

20 April 2009

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APPENDIX IV

DOCUMENTS FOR INSPECTION

Resolutions passed at the second meeting of the third board of directors of Xinjiang Xinjie Co., Ltd.;
Copies of business license for Xinjiang Xinjie Co., Ltd.;
Property title documents (Building Ownership Certificate, Land Use Right Certificate, Vehicle License);
Letters of Undertaking for Asset Appraisal from Xinjiang Xinjie Co., Ltd.;
Letters of Undertaking from the assets valuation firm and the registered valuers;
Copies of Asset Appraisal Qualification Certificate for China United Assets Appraisal Co., Ltd.;
Copies of Corporate Legal Person Business License for China United Assets Appraisal Co., Ltd.;
Copies of Qualification Certificates of valuers of this project;

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GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

This circular includes the particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement herein misleading.

2. DIRECTORS’ INTERESTS

As at the Latest Practicable Date, the interests or short positions of the Directors and chief executives of the Company in the shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which any such Director and chief executive of the Company is taken or deemed to have under such provisions of the SFO); or which (b) were required to be entered into the register maintained by the Company, pursuant to section 352 of the SFO; or which (c) were required to be notified to the Company and the Stock Exchange, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules are set out below.

2.1 Ordinary Shares of HK$0.01 Each of the Company

		Capacity and	Percentage
	Number of	Nature of	of Issued
Name	Shares	Interests	Shares
Li Hualin	14,000,000	Beneficial owner	0.28%
Li Kwok Sing Aubrey	1,000,000	Beneficial owner	0.02%

Notes: The interests held by Mr. Li Hualin and Mr. Li Kwok Sing Aubrey represent long position in the Shares of the Company.

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GENERAL INFORMATION

APPENDIX V

2.2 Share Options

Shares options were granted to the Directors, chief executives and employees of the Company under the executive share option scheme approved by the Board on 3 June 2002, details of which are set out below:

Name Date of Grant Exercise Period Exercise Price HK$ Directors Li Hualin 27 Apr 2005 27 Jul 2005 – 26 Apr 2010 1.224 8 Jan 2007 8 Apr 2007 – 7 Jan 2012 4.186 26 May 2008 26 Aug 2008 – 25 May 2013 4.240 26 Mar 2009 26 Jun 2009 – 25 Mar 2014 3.250 Zhang Bowen 8 Jan 2007 8 Apr 2007 – 7 Jan 2012 4.186 26 May 2008 26 Aug 2008 – 25 May 2013 4.240 26 Mar 2009 26 Jun 2009 – 25 Mar 2014 3.250 Cheng Cheng 25 Jun 2004 25 Sep 2004 – 24 Jun 2009 0.940 8 Jan 2007 8 Apr 2007 – 7 Jan 2012 4.186 26 May 2008 26 Aug 2008 – 25 May 2013 4.240 26 Mar 2009 26 Jun 2009 – 25 Mar 2014 3.250 Liu Xiao Feng 27 Apr 2005 27 Jul 2005 – 26 Apr 2010 1.224 Employees 27 Apr 2005 27 Jul 2005 – 26 Apr 2010 1.224 8 Jan 2007 8 Apr 2007 – 7 Jan 2012 4.186 14 Sep 2007 14 Dec 2007 – 13 Sep 2012 4.480 26 May 2008 26 Aug 2008 – 25 May 2013 4.240 26 Mar 2009 26 Jun 2009 – 25 Mar 2014 3.250	Outstanding at 1 January 2009 20,000,000 25,000,000 3,200,000 – 20,000,000 2,400,000 – 15,640,000 10,000,000 1,500,000 – 1,600,000 26,000,000 25,000,000 20,000,000 7,000,000 – 177,340,000	Number of Share Options Granted – – – 3,200,000 – – 2,400,000 – – – 1,500,000 – – – – – 7,000,000 14,100,000	Number of Share Options Exercised (20,000,000) – – – – – – (15,640,000) – – – (1,600,000) (8,500,000) – – – – (45,740,000)	Outstanding at the Latest Practicable Date – 25,000,000 3,200,000 3,200,000 20,000,000 2,400,000 2,400,000 – 10,000,000 1,500,000 1,500,000 – 17,500,000 25,000,000 20,000,000 7,000,000 7,000,000
				145,700,000

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APPENDIX V

GENERAL INFORMATION

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executives of the Company nor their associates, had any other interests or short positions in the shares, underlying shares and debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which any such Director or the chief executive of the Company is taken or deemed to have under such provisions of the SFO); or which (b) were required to be entered into the register maintained by the Company, pursuant to section 352 of the SFO; or which (c) were required to be notified to the Company or the Stock Exchange, pursuant to the Model Code for Securities Transaction by Directors of Listed Issuers contained in the Listing Rules, and none of the Directors, nor their spouses or children under the age of 18, had any right to subscribe for securities of the Company, or had exercised any such right since 31 December 2008 (being the date of the Company’s latest published audited accounts).

2.3 Competing Business

As at the Latest Practicable Date, none of the Directors and their respective associates had any interest in a business which competes or may compete with the businesses of the Group (as would be required to be disclosed under Rule 8.10 of the Listing Rules if each of them were a controlling shareholder).

2.4 Additional Disclosure of Interest

There was no contract or arrangement subsisting as at the Latest Practicable Date, in which any of the Directors was materially interested and which was significant in relation to the businesses of the Group.

Save as disclosed herein, none of the Directors, directly or indirectly, has had any interest in any assets which had since 31 December 2008 (being the date to which the latest published audited financial statements of the Company were made up) been acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

– 181 –

GENERAL INFORMATION

APPENDIX V

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, the register of substantial shareholders maintained under section 336 of the SFO, showed that the Company has been notified of the following interests, being 5% or more of the Company’s issued share capital. These interests are in addition to those disclosed above in respect of the Directors, chief executives and employees of the Company.

			Percentage of the
	Number of Shares		total number of
Name	Direct Interest	Indirect Interest	Shares in issue
Sun World Limited (1)	2,513,917,342 (L)	–	50.92%
PetroChina Hong Kong (BVI) Ltd. (1)	–	2,513,917,342 (L)	50.92%
PetroChina Hong Kong Ltd. (1)	–	2,513,917,342 (L)	50.92%
PetroChina Company Limited (1)	–	2,513,917,342 (L)	50.92%
China National Oil and Gas Exploration and	–	113,640,000 (L)	2.30%
Development Corporation (“CNODC”) (2)
CNPC International Ltd. (“CNPCI”) (2)	–	113,640,000 (L)	2.30%
Fairy King Investments Ltd.	113,640,000 (L)	–	2.30%
China National Petroleum Corporation(1) (2)	–	2,627,557,342(L)	53.23%

Notes:

(1) Sun World Limited is a wholly-owned subsidiary of PetroChina Hong Kong (BVI) Ltd., which in turn is wholly owned by PetroChina Hong Kong Ltd.. PetroChina Hong Kong Ltd. is wholly owned by PetroChina, which is in turn owned as to 86.42% by China National Petroleum Corporation (“CNPC”). Accordingly, CNPC is deemed to have interest in the 2,513,917,342 shares held by Sun World Limited. Mr Li Hualin, the Chairman of the Company and Mr Zhang Bowen, the Chief Executive Officer of the Company are also directors of Sun World Limited, which is a substantial shareholder of the Company (within the meaning of Part XV of the SFO).
(2) Fairy King Investments Ltd. is a wholly-owned subsidiary of CNPCI, which in turn is wholly owned by CNODC, which is in turn owned as to 100.00% by CNPC. Accordingly, CNPC is deemed to have interest in the 113,640,000 shares held by Fairy King Investments Ltd..

Save as disclosed above, as at the Latest Practicable Date, the Directors and the chief executives of the Company were not aware of any person (other than a Director or chief executive of the Company) who had any interest or short position in the Shares or underlying Shares of the Company which would fall to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO.

As at the Latest Practicable Date, the Directors and the chief executives of the Company were not aware of any person (other than a Director or chief executive of the Company) who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group, or any options in respect of such capital.

– 182 –

GENERAL INFORMATION

APPENDIX V

4. SERVICE CONTRACT

As at the Latest Practicable Date, none of the Directors or proposed directors has any existing service contract or proposed service contract with the Company or any of its subsidiaries which was not terminable by the Company within one year without payment of consideration.

5. MATERIAL ADVERSE CHANGE

The Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2008 (being the date to which the latest published financial statements of the Company have been made up) and up to the Latest Practicable Date.

6. QUALIFICATION AND CONSENT OF EXPERTS

The following are the qualifications of the experts who have given opinion or advice which is contained in this circular:

Name	Qualification
Guangdong Securities	a licensed corporation for type 1
	(dealing in securities), type 2
	(dealing in futures contracts), type 4
	(advising on securities), type 6
	(advising on corporate finance) and
	type 9 (asset management) regulated
	activities under the SFO
BMI Appraisals Limited	Independent Professional Valuer
China United Assets Appraisal Co., Ltd.	China Certified Public Assets Valuer

Each of the experts referred to above has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and/ or reference to its name or opinion in the form and context in which it appears.

As at the Latest Practicable Date, a fund named “Beston Vantage Fund”, of which Guangdong Securities is the fund manager, was interested in 500,000 Shares, representing approximately 0.01% of the total issued share capital of the Company. Save as aforementioned, as at the Latest Practicable Date, the experts referred to above were not beneficially interested in the share capital of any member of the Group nor did they have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

– 183 –

GENERAL INFORMATION

APPENDIX V

None of the experts referred to above, directly or indirectly, has had any interest in any assets which had since 31 December 2008 (being the date to which the latest published audited financial statements of the Company were made up) been acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

7. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during business hours at the registered office of the Company at Rooms 3907 – 3910, 39th Floor, 118 Connaught Road West, Hong Kong from the date of this circular up to and including 27 January 2010:

(i) the Huayou Share Acquisition Agreement dated 30 December 2009 entered into between the Company, Huayou and the Other Shareholders of Huayou;
(ii) the Refined Oil Pipeline Transmission Assets Disposal Agreement dated 18 December 2009 entered into between Xinjiang Xinjie and PetroChina Western Pipeline Branch;
(iii) the Refined Oil Storage Assets Disposal Agreement dated 18 December 2009 entered into between Xinjiang Xinjie and PetroChina Northwestern Sales Branch; and
(iv) this circular.

– 184 –

NOTICE OF THE SGM

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CNPC (HONG KONG) LIMITED
(incorporated in Bermuda with limited liability)
CNPC (HONG KONG)
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CNPC (HONG KONG) LIMITED

(Stock Code: 0135)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Special General Meeting of CNPC (Hong Kong) Limited (the “Company”) will be convened at Harbour View Room III & IV, 3/F., The Excelsior, Hong Kong, 281 Gloucester Road, Causeway Bay, Hong Kong, on 28 January 2010 at 11:00 a.m. for the purpose of considering and, if thought fit, passing with or without modifications, the following resolutions as an ordinary resolutions of the Company:–

“ THAT :
(i) the transactions contemplated under the Huayou Share Acquisition Agreement (as defined in the circular of the Company in respect of the Huayou Share Acquisition and the Xinjiang Xinjie Assets Disposal dated 13 January 2010 (the “Huayou and Xinjiang Xinjie Circular”)) (a copy of which is tabled at the meeting and marked “A” and initialled by the chairman of the meeting for identification purposes) be and are hereby generally and unconditionally approved; and
(ii) any one director (if execution under the common seal of the Company is required, any two directors) of the Company be and is/ are hereby authorised for and on behalf of the Company to sign, and where required, to affix the common seal of the Company to any documents, instruments or agreements, and to do any acts and things deemed by him to be necessary or expedient in order to give effect to the Huayou Share Acquisition (as defined in the Huayou and Xinjiang Xinjie Circular).”
“ THAT :
(i) the transactions contemplated under the Refined Oil Storage Assets Disposal Agreement and the Refined Oil Pipeline Transmission Assets Disposal Agreement (both as defined in the Huayou and Xinjiang Xinjie Circular) (a copy of each is tabled at the meeting and marked “B” and “C” respectively and initialled by the chairman of the meeting for identification purposes) be and are hereby generally and unconditionally approved; and
(ii) any one director (if execution under the common seal of the Company is required, any two directors) of the Company be and is/ are hereby authorised for and on behalf of the Company to sign, and where required, to affix the common seal of the Company to any documents, instruments or agreements,

* For identification purpose only

– SGM–1 –

NOTICE OF THE SGM

and to do any acts and things deemed by him to be necessary or expedient in order to give effect to the Xinjiang Xinjie Assets Disposal (as defined in the Huayou and Xinjiang Xinjie Circular).”

“ THAT :
(i) the transactions contemplated under the Financial Services Agreement (as defined in the circular of the Company dated 13 January 2010 (the “CCT Circular”) (a copy of which is tabled at the meeting and marked “D” and initialled by the chairman of the meeting for identification purposes) be and are hereby generally and unconditionally approved; and
(ii) any one director (if execution under the common seal of the Company is required, any two directors) of the Company be and is/are hereby authorised for and on behalf of the Company to sign, and where required, to affix the common seal of the Company to any documents, instruments or agreements, and to do any acts and things deemed by him to be necessary or expedient in order to give effect to the transactions contemplated under the Financial Services Agreement.”
“ THAT :
(i) the revised annual caps for the Continuing Connected Transactions (as defined in the CCT Circular) under categories (a)(i) and (a)(ii) for each of the two financial years ending 31 December 2011 as set out in the “Letter from the Board” in the CCT Circular be and are hereby generally and unconditionally approved;
(ii) any one director (if execution under the common seal of the Company is required, any two directors) of the Company be and is/ are hereby authorised for and on behalf of the Company to sign, and where required, to affix the common seal of the Company to any documents, instruments or agreements, and to do any acts and things deemed by him to be necessary or expedient in order to give effect to the revised annual caps for the Continuing Connected Transactions under categories (a)(i) and (a)(ii) for each of the two financial years ending 31 December 2011 as set out in the “Letter from the Board” in the CCT Circular.”

By Order of the Board Lau Hak Woon Company Secretary

Hong Kong, 13 January 2010

Notes:

A member entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and vote in his/ her stead. A proxy need not be a member of the Company. Completion and return of the form of proxy will not preclude a member from attending and voting in person at the meeting or any adjourned meeting should he so wish.

– SGM–2 –

NOTICE OF THE SGM

To be valid, the form of proxy, together with a power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power of attorney or authority, must be deposited at the Company’s principal office at Rooms 3907 – 3910, 39th Floor, 118 Connaught Road West, Hong Kong not less than 48 hours before the time appointed for holding the meeting or adjourned meeting. The form of proxy must be completed strictly in accordance with the instructions set out therein.
(China National Petroleum Corporation*) and its associates will abstain from voting in respect of Resolutions Nos. 1, 2, 3 and 4.
Unless otherwise defined, terms used in this notice shall have the same meanings as those defined in the Huayou and Xinjiang Xinjie Circular and the CCT Circular.
For identification purpose only

– SGM–3 –

AI assistant

Raymond Industrial Limited — Proxy Solicitation & Information Statement 2010

49052_rns_2010-01-13_b11cbcb7-3a06-45f7-b3b5-77cc7e93d7da.pdf

CNPC (HONG KONG) LIMITED

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

CNPC (HONG KONG) LIMITED

(Stock Code: 0135)

To the Shareholders

(1) CONNECTED TRANSACTION IN RELATION TO THE HUAYOU SHARE ACQUISITION (2) CONNECTED TRANSACTION IN RELATION TO DISPOSAL OF ASSETS FROM XINJIANG XINJIE TO PETROCHINA

1. INTRODUCTION

1.1 Huayou Share Acquisition

1.2 Disposal of Assets from Xinjiang Xinjie to PetroChina

2. HUAYOU SHARE ACQUISITION

2.1 Introduction

2.2 Huayou Share Acquisition Agreement

(c) Acquisition

(d) Consideration

LETTER FROM THE BOARD

(e) Conditions Precedent

(f) Completion

2.3 Reasons for, and benefits of, the Huayou Share Acquisition

2.4 Relation among the parties and connected transaction

3. XINJIANG XINJIE ASSETS DISPOSAL AGREEMENTS

3.1 Introduction

3.2 Xinjiang Xinjie Assets Disposal Agreements

(i) Refined Oil Storage Assets Disposal Agreement

(d) Consideration:

LETTER FROM THE BOARD

(e) Conditions Precedent:

(f) Completion

(ii) Refined Oil Pipeline Transmission Assets Disposal Agreement

LETTER FROM THE BOARD

(c) Assets to be disposed of:

(d) Consideration:

(e) Conditions Precedent:

(f) Completion

3.3 Valuation of the Xinjiang Xinjie Assets Disposal

3.4 Reasons for, and benefit of, the Xinjiang Xinjie Assets Disposal

3.5 Relationship among the parties and connected transactions

4. INFORMATION ON THE COMPANY AND OTHER PARTIES

(a) Information on the Company

(b) Information on CNPC

(c) Information on Huayou Group

(d) Information on Shenzhen Petroleum

(e) Information on Xinjiang Xinjie

(f) Information on PetroChina

5. SGM

6. RECOMMENDATION

7. ADDITIONAL INFORMATION

CNPC (HONG KONG) LIMITED

(1) CONNECTED TRANSACTION IN RELATION TO THE HUAYOU SHARE ACQUISITION (2) CONNECTED TRANSACTION IN RELATION TO DISPOSAL OF ASSETS FROM XINJIANG XINJIE TO PETROCHINA

(1) CONNECTED TRANSACTION IN RELATION TO HUAYOU SHARE ACQUISITION (2) CONNECTED TRANSACTION IN RELATION TO DISPOSAL OF ASSETS FROM XINJIANG XINJIE TO PETROCHINA

INTRODUCTION

The Huayou Share Acquisition

LETTER FROM GUANGDONG SECURITIES

The Xinjiang Xinjie Assets Disposal

LETTER FROM GUANGDONG SECURITIES

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

(A) HUAYOU SHARE ACQUISITION

(1) Background of the Huayou Share Acquisition

The Huayou Share Acquisition Agreement

Information on the Group

LETTER FROM GUANGDONG SECURITIES

Information on Huayou

LETTER FROM GUANGDONG SECURITIES

(2) Reasons for the Huayou Share Acquisition

(3) Principal terms of the Huayou Share Acquisition Agreement

The Huayou Share Consideration

Trading multiples analysis for the Huayou Share Consideration

LETTER FROM GUANGDONG SECURITIES

Other terms of the Huayou Share Acquisition Agreement

(4) Possible financial effects of the Huayou Share Acquisition

Effect on net assets

Effect on earnings

Effect on gearing and working capital

Raymond Industrial Limited Proxy Solicitation & Information Statement 2010